# IPOR

**Published by:** [Anas Akkad](https://paragraph.com/@anas-akkad/)
**Published on:** 2022-12-24
**URL:** https://paragraph.com/@anas-akkad/ipor

## Content

Protocol OverviewIPOR, the Inter Protocol Over-block Rate, is a decentralized protocol that enables the creation and trade of interest rate derivatives such as interest rate swaps The IPOR Protocol consists of three main parts:The IPOR Index benchmark interest rates for DeFiAMM for interest rate swaps - i.e. IPOR Interest Rate Derivatives (IRDs)Asset management smart contractsIPOR Protocol IllustrationThe IPOR Index benchmark interest rates for DeFiThe IPOR Indices aim to foster the maturation of DeFi credit markets and become the benchmark reference rates for a wide range of derivative products, acting as fully transparent DeFi equivalents of the Secured Overnight Financing Rate (SOFR) and the London Interbank Offered Rate (LIBOR) previously. In TradFi, when financial institutions come up with an interest rate, they use benchmarks like LIBOR to reflect the fair market cost of borrowing and lending capital (also known as the “risk-free” rate). There are currently three IPOR indices: USDC, USDT & DAI The indices are calculated in real-time on-chain and can be adjusted by DAO governance. Since external protocols’ interest rates can be volatile, the IPOR index can serve as an adequate proxy for the risk-free rate, as the collateral effectively mitigates default risk. The index is calculated as the market cost of money defined by a weighted average from money markets like AAVE and Compound. The data is weighted by liquidity with a formulaAMM for interest rate swaps - i.e. IPOR Interest Rate Derivatives (IRDs)Interest rate swaps allow users to exchange the cash flows of a fixed interest rate for a floating interest rate and vice versa. Two bets can be taken with an interest rate swap: Long interest rate — Betting on an increasing interest rate by paying a fixed rate and receiving a floating rate (Fixed to Floating) Short interest rate — Bet on a decreasing interest rate by paying a floating rate and receiving a fixed rate (Floating to Fixed) The positions are settled by the losing party to the winner. In IPOR, the counterparty is the liquidity pool. Participants pay the margin, the contract fee, and applicable network fees in exchange for the service. The AMM price is based on the IPOR index. It offers a 28-day swap that uses a peer-to-pool model between the trader and the liquidity pool (the counterparty) for both pay-fixed and received-fixed contracts. Hence, there are only two parties involved, traders and liquidity providers (LPs). IPOR allows traders up to 1000x leverage. The high leverage does not hurt because of the low volatility market. And, PnL accrues over time, with low risks of sudden liquidations due to market manipulations.Asset management smart contractsProtocol deploys low risk yield farming strategies on idle liquidity in the pool to generate extra yield for LPsIPOR MarketplaceTraders:Open interest rate swap positions (28-day maturity)Hedge interest rate exposure - such as an AAVE or Compound loansSpeculate by Fixing interest rate or take directional betsArbitrage between interest rates - take advantage of market inefficiencies between stablecoin pairs and markets.Liquidity ProvidersDeposit single-sided liquidity (no impermanent loss) in USDC, USDT, or DAI to receive a competitive APR.LPs act as the counterparty to all traders. Their revenue consists of:Fees paid by traders to open a trade — 1% of the collateralPnL from traders — traders’ gain is LPs’ lossThe leveraged yield on assets — idle assets in the LP pools and collateral deposited by traders is lent out on money marketsThere is no impairment loss for LPs because the liquidity pool is for one stablecoin only. LPs’ revenue mainly comes from fees from trading. However, the potential risk to LPs is AMM’s ability to automatically correct the price spreads. As IPOR’s request-for-quote AMM is different from general AMMs, it actively sets spreads (difference between floating and fixed rate) based on external conditions like volatility, trend, maturity, etc.Momentum ThesisInterest rate derivatives (IRDs) is a $450 trillion market in TradFi.IPOR can be a attractive way for both individuals and institutions to hedge interest rate risksIt has the potential to be an infrastructure for other complicated protocols and derivativesAs IPOR keeps building, longer maturity swaps can be launched, a yield curve may be formed as a strong reference on the interest rate.IPOR’s interface is clean and simple with a hedging calculator for users to calculate how much swap they need and its built-in dashboard offers all the data the traders needTokenomicsThe IPOR token is a digital asset that will be used to enable users of the IPOR protocol to take ownership of the protocol as it becomes a fully decentralized autonomous organization (DAO). A total of 100 million IPOR tokens will be minted at the beginning, and no additional tokens will be minted. The IPOR token will be distributed to users through a process called liquidity mining, which rewards users with Power Tokens for providing liquidity to certain pools. Power Tokens are a staked representation of the IPOR token and serve as the governance token for the protocol. They can be used to earn additional rewards from protocol revenue and to vote on proposals within the DAO. Users can delegate their Power Tokens to representatives who can vote on their behalf. Redeeming Power Tokens for the underlying IPOR tokens is only possible when the Power Tokens are not being used in any modules. The process of liquidity mining involves staking LP tokens, staking the native token to receive Power Tokens, and delegating Power Tokens to "power up" liquidity mining.CompetitorsThe following protocols are involved in the interest rate derivatives space, however not all are direct competitors of IPOR.PendleTimeswapElement FinanceAlchemix FinanceFlashstakeApwine88mphConclusionIn conclusion, IPOR is a critical piece of infrastructure to the decentralized finance sector. It is poised to revolutionize the way that interest rate derivatives are traded, providing a decentralized alternative to traditional financial systems. By offering a benchmark index and a market maker for interest rate swaps, IPOR enables users to hedge interest rate risks and speculate on interest rate movements. Its high leverage and competitive returns make it attractive to traders and liquidity providers alike, and its decentralized governance model allows for transparency and fairness in the system. Overall, IPOR is an innovative and important development in the world of decentralized finance, and it has the potential to have a significant impact on the financial industry as a whole. https://twitter.com/anasakkad

## Publication Information

- [Anas Akkad](https://paragraph.com/@anas-akkad/): Publication homepage
- [All Posts](https://paragraph.com/@anas-akkad/): More posts from this publication
- [RSS Feed](https://api.paragraph.com/blogs/rss/@anas-akkad): Subscribe to updates
- [Twitter](https://twitter.com/anasakkad): Follow on Twitter