Understanding IPOR Labs: An Interest Rate Swap Protocol Allowing Speculation or Hedging on DeFi Interest Rates
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Understanding IPOR Labs: An Interest Rate Swap Protocol Allowing Speculation or Hedging on DeFi Interest Rates
IPOR is a DeFi protocol that allows you to hedge against or speculate on interest rates from major DeFi lending platforms such as Aave and Compound.
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Written by: Minty
Translated by: TechFlow
One relatively under-the-radar project I've recently come across is IPOR Labs. It's a project that allows you to speculate on or hedge DeFi interest rates, earn stablecoin yields, and receive retroactive rewards.
Before we begin, let’s briefly discuss interest rate swaps. An interest rate swap occurs when two parties agree to exchange their loan interest rates to benefit both sides. This typically happens due to differences between variable and fixed interest rates.
Imagine you took out a loan with a rising variable interest rate, while your friend opted for a fixed rate. Instead of refinancing your variable-rate loan, it might be cheaper to swap rates with your friend and offer them a small incentive. As long as the rate you offer them is lower than your refinancing cost, both you and your friend profit.
In most cases, only large banks have access to interest rate swaps, using benchmarks like LIBOR or SOFR—reference rates banks use when lending.
IPOR is building a similar DeFi infrastructure using its own IPOR Index.
IPOR is a DeFi protocol that enables users to hedge against or speculate on interest rates from major DeFi lending platforms such as Aave and Compound.
By creating its own index, users can go long (fixed-to-floating) or short (floating-to-fixed) on interest rates using major stablecoins. The index is also designed to be a public good, allowing any protocol to build on top of it.
One of the coolest features is: to hedge your interest rate exposure, you only need to post $1 in collateral for every $1,000 worth of rate you're hedging (though still subject to liquidation).
IPOR also offers highly attractive stablecoin yields for providing liquidity. Currently, projected annual yields for stablecoins range from 8% to 17%, derived from swap fees, trading activity, and staking rewards.
Recently, IPOR announced plans to implement asset management, which could generate additional returns for LPs depositing into its pools.
Note that yield providers are essentially counterparties to traders, so keep this in mind when supplying liquidity.
IPOR has also confirmed it will distribute retroactive rewards to users and community members. You can benefit by using the protocol, providing liquidity, or contributing within their community server.
IPOR’s TVL has been steadily increasing. Given its competitive stablecoin yields, I expect this growth to continue over time.
That said, the protocol currently carries the following risks:
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Despite having undergone audits, this is still a new protocol that needs market validation—assess your risk tolerance accordingly.
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Yields earned as a liquidity provider are not risk-free, so do your own research (DYOR).
All in all, I find what IPOR is building to be very interesting for the broader DeFi ecosystem, and I look forward to seeing the team continue developing in the future.
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