Thread by @jonwu_

A new protocol called InfinityPools just launched on Base, with:

1) Unlimited leverage
2) No liquidations
3) Yield while you trade with Ethena and Lido

And the way it works is very clever:

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First off spot swaps and LPing are live today in the launch pools at :

wstETH/sUSDe --> Lido rewards
sUSDe/USDC --> $ENA rewardsinfinitypools.finance

The typical way to get spot leverage is through a margin trade:

I put up some collateral, earn the right to borrow funds from a counterparty, and buy more of the underlying asset than I otherwise could.

The downside protection for a margin account is liquidations--

Forced selling of the position so the exchange isn't undercollateralized on its lending position to the trader.

The need for efficient liquidations means:

1) leverage needs to be capped: higher leverage = higher risk of undercollateralization
2) leverage is restricted only to high-liquidity asset pairs

InfinityPools solves liquidation by borrowing the liquidity needed to unwind the leverage ahead of time, in the form of concentrated AMM liquidity.

This is really clever!

When you commit concentrated AMM liquidity, you're contributing two assets (say $USDC and $ETH), plus a commitment to swap one for the other across the price ticks you supply over.

So borrowing liquidity means borrowing the underlying assets that form the position. This borrow position accrues interest against it, but can be returned at any time so long as interest continues to be paid.

Let's review:

To do a 10x long $ETH margin trade for 1 $ETH at $1,000, you contribute $100 of margin and borrow $900 of AMM liquidity at the liquidation price of $900, and get 1 $ETH in return.

If the price stays above $900, you're solvent and can repay the $900 in liquidity and you're good to go, 10x leverage, bada bing bada boom.

If the price falls below $900, this is where the magic happens, because you own a piece of concentrated liquidity at $900.

And what is concentrated liquidity but a standing offer to swap $ETH for $USDC at $900!

This is cool. And because concentrated liquidity is essentially an option, you've borrowed a put option at your liquidation price.

So when your price falls to $900, you exercise the option you borrowed to sell $ETH for $900.

So no matter how far the price of $ETH falls, you've always got an option to sell it for $900.

Theoretically this means infinite leverage with no liquidations (coming next week!).

LPs should also earn significantly higher yields (in theory) than providing for spot AMMs, given out of range liquidity is constantly being borrowed to protect levered positions.

So you earn yield while in-range but also while out.

Check it all out at infinitypools.finance