"The most important number in #finance", the London Interbank Offered Rate (#LIBOR), died a shameful death at the age of 52.
The interest rate benchmark underpinned more than $300 trillion in financial contracts before being marred in a scandal that lasted ~ a decade.
A short🧵
The interest rate benchmark underpinned more than $300 trillion in financial contracts before being marred in a scandal that lasted ~ a decade.
A short🧵
2/ The scandal came into the limelight in 2008 but there is evidence that collusion between banks was going on since 2003.
🤥 “We know that we’re not posting, um, an honest” rate, a Barclays employee told a New York Fed official in April 2018.
How was it done?
🤥 “We know that we’re not posting, um, an honest” rate, a Barclays employee told a New York Fed official in April 2018.
How was it done?
3/ #Barclays was a key player.
Barclays would submit its #LIBOR estimate, claiming that it was lower than what other banks actually charged it.
A lower rate indicated a smaller risk of default & is considered a sign that a bank is in better shape than another bank.
Barclays would submit its #LIBOR estimate, claiming that it was lower than what other banks actually charged it.
A lower rate indicated a smaller risk of default & is considered a sign that a bank is in better shape than another bank.
4/ It wasn’t just Barclays, though.
The "LIE-bor" affair involved individual bankers within a number of major financial organizations, including Deutsche Bank, Citigroup, JPMorgan Chase, and the Royal Bank of Scotland.
🤠🤠🤠🤠🤠
The "LIE-bor" affair involved individual bankers within a number of major financial organizations, including Deutsche Bank, Citigroup, JPMorgan Chase, and the Royal Bank of Scotland.
🤠🤠🤠🤠🤠
5/ At UBS, one trader manipulating the benchmark, Thomas Hayes, managed to rake in hundreds of millions of dollars for the bank over the course of three years.
Since >thousands of derivatives contracts were based on the LIBOR, however, it took years to phase it out.
Since >thousands of derivatives contracts were based on the LIBOR, however, it took years to phase it out.
6/ We have #DeFi now, can we do better?
Of course.
The most liquid DeFi lenders, including @AaveAave and @compoundfinance, auto-publish their lending & borrowing rates on-chain enabling "immutable transparency".
That's one part of the "manipulation-proof benchmarks" puzzle. 🧩
Of course.
The most liquid DeFi lenders, including @AaveAave and @compoundfinance, auto-publish their lending & borrowing rates on-chain enabling "immutable transparency".
That's one part of the "manipulation-proof benchmarks" puzzle. 🧩
7/ The second part (also an IPOR special trick) is to
(🚨) calculate the benchmark on-chain.
And the third is, you guessed it, to publish it on-chain. ⛓️
That's how you create a #TrueDeFi public good and lay the foundations of an entire blockchain-based financial ecosystem. 💪
(🚨) calculate the benchmark on-chain.
And the third is, you guessed it, to publish it on-chain. ⛓️
That's how you create a #TrueDeFi public good and lay the foundations of an entire blockchain-based financial ecosystem. 💪
8/ Finally, to make the IPOR Indices adaptable to the fluid state of DeFi, a DAO is responsible for the parameters adjustment and the protocols (incl. their wights) to be included in the on-chain calculation. 🎯
🤔 But do we REALLY need such benchmarks in #DeFi?
🤔 But do we REALLY need such benchmarks in #DeFi?
9/ Only if we want the #DeFi industry to mature. (which we do!)
Currently, #exotics are the prevalent form of assets being traded on-chain.
That's a VERY small part of portfolios in #TradFi.
One of the largest markets there is actually:
👉 Interest Rate Derivatives (#IRDs)
Currently, #exotics are the prevalent form of assets being traded on-chain.
That's a VERY small part of portfolios in #TradFi.
One of the largest markets there is actually:
👉 Interest Rate Derivatives (#IRDs)
10/ It's where #DeFi is headed. 💯
✔️ High-liquidity players are risk-averse.
✔️ Healthy #creditmarkets NEED tools to #hedge risk.
✔️ #Traders WANT to #arbitrage & speculate with directional positions.
✔️ On-chan derivatives REQUIRE reliable & transparent reference indices.
✔️ High-liquidity players are risk-averse.
✔️ Healthy #creditmarkets NEED tools to #hedge risk.
✔️ #Traders WANT to #arbitrage & speculate with directional positions.
✔️ On-chan derivatives REQUIRE reliable & transparent reference indices.
11/ That's #IPOR
The IPOR 28-day maturity benchmarks for $USDT, $USDC, and $DAI already reflect the true cost of borrowing & lending in #DeFi.
➕ More assets & longer maturities are coming.
🎓 Curious about the future of #DeFi?
▶️ Visit docs.ipor.io
The IPOR 28-day maturity benchmarks for $USDT, $USDC, and $DAI already reflect the true cost of borrowing & lending in #DeFi.
➕ More assets & longer maturities are coming.
🎓 Curious about the future of #DeFi?
▶️ Visit docs.ipor.io
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