The traditional finance market (TradFi) is dominated by fixed-rate loans. However, a reliable solution in the decentralized finance (DeFi) space has yet to come about. To bring TradFi portfolio managers into the DeFi industry, the issue of fixed rates needs to be solved.
Many DeFi platforms claim to offer stable interest rates, but in reality, assets are so volatile that they might fluctuate from single to double digits and vice versa. This volatility makes it nearly impossible to guarantee reliable long-term earnings or control leverage regardless of whether one is a lender or a borrower. One DeFi protocol, iGain IRS (Interest Rate Synth), is aiming to solve this.
Providing a real solution
The current DeFi space offers a few interest rate solutions, such as zero-coupon bonds and yield redistribution, but they’re not as efficient as one might think. iGain IRS is instead building a derivatives platform focused on interest rates.
With iGain IRS, users can borrow or lend any asset with the corresponding amount of long or short tokens to respectively secure their fixed income or limit their costs. The platform also provides an ability to simply long or short interest without borrowing or lending, giving traders a method of profit off economic uncertainty or bear markets.
iGain IRS’ lenders can buy short tokens to, well, short the market’s interest rates. Conversely, borrowers can purchase long tokens to limit their long-term costs. From there, iGain IRS offers a fleshed-out lending and borrowing platform for its users. Anyone can lend or borrow stablecoins from within the platform or provide liquidity in various pools to earn transaction fees.
The platform currently supports USDC, USDT, and DAI stablecoins. The protocol is tied to the DeFi platform Aave (AAVE), though compatibility with Yearn.Finance (YFI) is also coming this year.
iGain IRS proved so popular, with $50 million of notional value traded in the past three months, that Polygon even rewarded it with a grant to fund further development and fuel its growth.
iGain IRS is just one of a whole set of platforms under the iGain moniker. iGain is a platform enabling anyone to long or short any type of DeFi metric volatility. For instance, Hakka Finance, the decentralized autonomous organization (DAO) behind the iGain mantra, has also launched iGain IG for users to hedge against impermanent loss. The platform is currently developing a feature that will be customizable to users to hedge against the DeFi metric volatility of their choice.
Image: the notional value of the assets traded on iGain IRS. Courtesy of iGain IRS
An interest-powered ecosystem
Hakka Finance is an entire ecosystem powered by a DAO that hopes to serve a similar purpose to investment banks in traditional finance, only with DeFi instead.
"Instead of rebuilding a lending market from scratch, we have chosen to build on top of Aave. We believe that the appeal of DeFi is its composability, allowing protocols to unite together to generate substantial network effects and jointly challenge TradFi giants," Lucien Lee, CEO of Hakka Finance, shares.
While expanding the iGain IRS platform, Hakka Finance hopes to expand its offerings to cover even more financial concepts and eventually allow users to build their own versions of iGain.
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