Getting Ready for Infinite Leverage on InfinityPools
InfinityPools' mainnet went live on Base last week, and it has attracted a good deal of attention over its unique mechanisms, which will enable unlimited leverage trading across any token without liquidation risk (as long as users can pay the interest rate).
As the platform ramps up, things are limited out of the gate; traders can only provide liquidity to sUSDe/USDC and sUSDe/wstETH pools right now, but margin traders will very soon be able to get in on the action.
What's under the hood of the InfinityPools platform? Let's dive in 👇
Putting Idle Liquidity to Work
Margin trading is a great tool for crypto investors wanting to hedge their investments or gain additional exposure to a certain token. One of the main priorities for platforms that offer margin trading is managing bad debt and ensuring that lenders are repaid. This is easier said than done as token prices are volatile. If the token starts to free fall in price, it can be extremely difficult to sell it in time to ensure lenders receive their capital back.
InfinityPools has found a way to ensure liquidity if a situation like that arises by borrowing concentrated AMM liquidity. By tapping into concentrated liquidity, InfinityPools guarantees that someone is willing to buy the position at a certain price, the AMM.
Borrowing from an AMM
So let’s say that you want to long 1 ETH with 10x leverage, and the current price of ETH is $1000. You would put up 100 USDC for margin and would borrow 900 USDC from a concentrated AMM USDC/ETH pool, then swap your 1000 USDC for 1 ETH.
As long as the price of ETH stays above $900, you are fine, as the AMM only needs the 900 USDC back. So you can swap your ETH at any time and pay back the USDC that you borrowed.
But what if ETH begins to fall in price and gets to that $900 threshold? In this case, as the price of ETH ventures below the liquidity tick at which the USDC was borrowed, the AMM only expects the trader to deposit the ETH as a repayment.
Check out InfinityPools's docs for more details on its mechanics.
Breaking Barriers
By tapping into concentrated AMM liquidity pools, you can solve all of the issues mentioned above.
- Limited Token Selection:
As long as there is a concentrated AMM pool set up for the desired token you would like to trade, you will be able to trade it. Since there is liquidity for the token, InfinityPools doesn’t have to worry about finding a buyer as they would sell the position back to the AMM. - Limited Maximum Leverage:
InfinityPools can offer infinite leverage by having liquidity on-tap through concentrated AMM pools. With losses being capped at the amount of margin the trader put up, AMMs and LPs always receive back the liquidity they lent out. - Liquidation Penalties:
With traditional margin trading platforms, if a user’s position is liquidated this can eat into their profit from the trade. With InfinityPools, if your position were to be liquidated, the most a user would lose is their initial margin.
Navigating Interest Payments
What also makes InfinityPools unique is how their interest payments work. With traditional margin trading platforms, users would have their positions liquidated if the token were to hit a certain price point. With InfinityPools, as long as you keep your margin funded, your position will stay open.
This allows users to keep their positions open as long as they keep up with interest payments but this can get pricier as the the value of your position decreases, your margin decreases and may not be able to make interest payments. Since you are borrowing liquidity from the AMM, you would start paying the LP the rewards they are missing since you are using their liquidity.
To help traders get the most out of their positions and worry less about interest rates, InfinityPools offers different types of loans depending on the token and amount of leverage you are taking on, which include fixed-term, revolving, and periodic loans.
Not only will margin traders get more out of their capital thanks to InfinityPools, but LPs will also reap additional rewards on top of the trading fees they already receive.