@InfPools - Leverage Trading 2.0 Unlimited Leverage - No liquidations - No counterparty risk How does Infinity Pools flip leverage trading on its head? Instead of borrowing cash, traders borrow liquidity itself Instead of relying on oracles, it uses math Instead of sudden liquidations, it offers gradual unwinding For LPs, you always get better yield than the underlying AMM because your concentrated liquidity can still be lent out even when out of range For traders, you don't pay liquidation penalties and you won't deal with scam wicks anymore As long as the interest rate is paid, positions can stay open, regardless of price Take USDC/ETH Instead of borrowing assets, liquidity is borrowed, and this liquidity comes pre-loaded with a) the asset backing the position (USDC below market price, ETH above), and b) a guaranteed trading price within that range That is, there is an intention to buy (or sell) an asset at a given price (where the liquidity is deployed) How this actually works? Enter the Swapper The Swapper is the actual DeFi primitive that creates private trading pools with preset price ranges, letting traders execute leverage trades without the usual risks By borrowing liquidity from tight price ranges, traders access far more value than their collateral, creating leverage - The closer the liquidity range is to the current market price, the more liquidity will be available - The narrower the range the greater the leverage (because the borrowed reserves can support larger positions relative to the collateral required) Orchestrating this is an off-chain matching engine that acts as an interest rate router in a peer-to-pool manner First, Liquidity Providers (LPs) supply assets to the protocol and Traders borrow this liquidity to get leverage Second, the borrowed LP token is redeemed for the underlying reserves, which are swapped using a DEX aggregator to consolidate liquidity in the target asset and place it in the Trader's private pool Suppose ETH is trading at $3000 and you want to go long with 10x leverage - Current ETH Price: $3000 - Position Size: 1 ETH - Target Leverage: 10x - Notional: $3000 Required Margin: For 10x, the margin needed is 10% of the position value, so $300 Strike Price (where liquidation would occur): 10% below market price, so: Strike Price = Current Price * 0.9 = $3000 * 0.9 = $2700 Liquidity to Borrow = Notional - Margin = $3000 - $300 = $2700 So you would borrow $2700 worth of liquidity centered at $2,700 (and combined with the $300 of margin you get $3,000 total position value) Now, remember: - Liquidity below market price is in USDC - Liquidity above market price is in ETH 1. Trader deposits $300 margin 2. Trader borrows $2700 worth of liquidity centered at $2700 3. Combined borrow amount + margin equals notional of $3000 4. Trader redeems the LP to swap $3000 USDC for 1 ETH (1inch) Let's go through the scenarios: a) If the price stays above the strike price of $2700, all the AMM expects is $2700 USDC back, so if the price is higher than that the trader can sell a portion of his 1 ETH position to repay the loan and keep the remaining ETH as profits b) If the price drops below the strike price then the AMM expects 1 ETH back converted at 2700 USDC, but the trader already has 1 ETH to repay, so his max loss is limited to the $300 margin as an options premium, and no forced liquidations occur, since the position can remain open in perpetuity as long as the trader continues to pay interest on his loan At all times the trader can exit through the private pool created by Infinity Pools at the strike price, or through any DEX offering a better price Let's continue with the example: a) Price goes to $3300, so the position value is 1 ETH * $3300 = $3300, and the initial investment is $300, so profit is $3300 - $3000 = $300 or 100% return on margin b) Price falls to $2700 (strike price) so the position value is 1 ETH * $2700 = $2700, the initial investment is $300, so the loss is the max loss of the premium (margin) and that's a 100% loss but no forced liquidations (and therefore no liquidation penalty either) occur and you can move on to c) c) Price falls below $2700 and no forced liquidation occurs but you can maintain the position open by paying ongoing funding and the same payoff function applies. Suppose price drops to $2500, so the position value is 1 ETH * $2500 = $2500 and the AMM expectation is 1 ETH (not $2700), so you can keep the unrealized loss of $500 ($3000-$2500) as long as you keep paying the interest rate How is this possible? Below $2700 the AMM expects 1 ETH back that can be converted at the strike price through the private pool, and since the trader holds 1 ETH it can always repay Note how traditional systems would liquidate at that $2700 level, but Infinity Pools lets you keep it open as long as you continue paying the funding, which can be paid from the remaininig margin and, once the margin is depleted, the trader would need to top up from other sources, otherwise Infinity Pools closes with a TWAP or sale, meaning that the position unwinds if funding payments stop To put it in a nutshell, you can frame it as borrowing liquidity with a guaranteed exchange rate and paying a premium for it Hence, for the trader the maximum loss is capped to the premium paid, and this premium (here margin) is like paying for that guarantee, similar to how options have no liquidation risk because you have pre-paid for the right to exercise cc @MLGavaudan to fact-check if I misinterpreted anything or made any mistakes