About Interest Protocol
Interest Protocol (IP) is the first fractional reserve banking protocol on the Ethereum blockchain that pays interest to all depositors. Interest Protocol issues a stablecoin, named USDi, that is both over-collateralized and highly scalable. USDi holders automatically earn yield without having to stake, which means Interest Protocol provides yield opportunities to gas-conscious users. Compared to lending protocols without fractional reserves, Interest Protocol can generate more loans from a given amount of capital while incurring less liquidity risk.
|Company Name||Interest Protocol|
|Token For Sale||35,000,000 IPT|
|Whitepaper||Click Here To View|
The protocol has two primary participants:
- Depositors who hold USDi and earn interest
- Borrowers who borrow USDi from the protocol after posting collateral
What are the main pieces?
Every lending protocol has four key components:
- Users depositing capital
- Users posting collateral & borrowing capital
- Maintaining the peg with an interest rate system.
- Preventing a depeg with a liquidation system.
Interest Protocol improves upon each component to create an efficent and decentralized credit market.
Depositors can deposit capital (USDC) and receive a liquidity provider (LP) token (USDi) representing their loan to the protocol. USDi is a stablecoin that is redeemable one-to-one for the reserve asset (USDC). While holding USDi, interest automatically accrues to the holder through a positive rebasing system. This innovation eliminates the depositor’s need to stake capital and sacrifice liquidity.
Borrowers can post collateral assets after opening a vault. Each borrower has their own vault to deposit their collateral in. The collateral is used to cross-margin the user and increase their borrowing power. When a vault holds governance tokens as collateral, the vault owner can delegate the votes to another wallet. This allows the borrower to continue participating in protocol governance while borrowing against the governance tokens.
Interest Protocol’s interest rate system ensures that USDi holders can redeem their USDi for USDC and thus maintains USDi’s peg. When the protocol has a low reserve of USDC, both the borrow rate and the deposit rate of USDi automatically increase. This induces users to repay their USDi loans or deposit USDC to mint USDi, increasing the reserve ratio.
The liquidation system allows Interest Protocol to extend loans to borrowers while protecting depositors. Liquidations occur whenever a vault’s borrowing power drops below its liability. Liquidators are incentivized through a discount on the price of collateral assets to purchase those assets. Governance configures the discount for each asset.
Unlike most protocols, Interest Protocol’s liquidation system protects the borrower from unnecessary liquidations: liquidators can only liquidate a vault until the vault’s liability is equal to its borrowing power. To efficiently process large liquidations, the protocol allows liquidators to liquidate any amount as long as it does not exceed the maximum amount.
Capital flows to capital-efficient protocols. Interest Protocol’s improved risk management, automated rate adjustments, and superior terms make it the most capital-efficient lending protocol.
Community is the bedrock of Interest Protocol. A keep-it-simple approach to concepts and code encourages participation, leading to a vibrant community and an adaptable protocol.
Anyone can audit Interest Protocol’s finances on-chain. The whitepaper and docs explain how Interest Protocol works, the risks involved, and governance processes. Nothing is hidden.
The token delegate contract contains the core logic of IPT. The protocol can add or change the functionality by updating the implementation contract on the delegetor.
Liquidity is defined as the protocol’s ability to meet redemption demand. The protocol has an obligation to USDi holders to redeem 1 USDi for 1 USDC on demand. On the other hand, the protocol allows borrowers to maintain a outstanding loan balances as long as they wish, provided they maintain enough collateral to stay over-collateralized. This causes a maturity mismatch, and it is possible at times for the protocol to face redemption demand in excess of the USDC held in Reserve. The protocol uses two mechanisms to minimize this possibility.
First, Interest Protocol aims to maintain a sufficiently high reserve ratio at all times by using a variable interest rate. As explained in the USDi and interest rate section; whenever the reserve ratio is low, a high interest rate incentivizes users to replenish the reserve by repaying their debt or depositing USDC — ensuring that any USDC shortage is short-lived.
Second, Interest Protocol aims to guarantee liquidity in various USDi markets. So long as USDi can be swapped for other assets with little slippage, users can hold USDi to earn interest until they wish to purchase other assets, at which point they can pay for the assets with USDi. Liquidity in USDi markets lowers the demand to redeem USDi for USDC.
Credit risk is the risk of borrowers defaulting on their loans. To manage credit risk, Interest Protocol only makes over-collateralized loans and liquidates under-collateralized vaults. The protocol employs an efficient liquidation mechanism that quickly and accurately unwinds under-collateralized vaults. This means that—compared to lending protocols with less efficient liquidation mechanisms—Interest Protocol is able to extend loans on more favorable terms (such as with higher LTVs) while incurring less credit risk.