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In today's crypto ecosystem Arbitrage is possible in spot / futures markets, but Rates Arbitrage is not possible with today’s lend/borrow protocols. This article discusses how Infinity’s enterprise-grade risk management system enables tokens and credit risk to be composable, leading to a revolution in the DeFi ecosystem. Infinity will be able to enable Rates Arbitrage where Arbitrageurs can single-handedly multiply their prevailing TVL leading to a rapid expansion of TVL in DeFi.
The Two Market Model (TMM) is an even notional/principal matching mechanic for lending and borrowing protocols. TMM consists of a Subscription market; and a Reference market, where a 1:1 ratio ensures that the Subscription market has no deadweight loss baked into the mechanics. TMM is modeled after TradFi institutional markets facilitating trillions of dollars in lending and borrowing.
In part 2, we dive deeper into the economics behind Utilisation and how Infinity Exchange sets out to create a borrowing and lending protocol that always operates at 100% Utilisation. With this new mechanic, Infinity matches a given quantity of lenders with the same quantity of borrowers. This ensures both lenders and borrowers get the best Interest rate possible.
This article introduces the concept of Utilisation and how it acts as the essential mechanism underpinning how today's DeFi lending protocols set their interest rates. Further, it highlights the inefficiencies of today's DeFi lending markets with their insanely wide bid-offers between lending and borrowing rates and how these wide bid-offers plaguing today's lending protocols are not considered tenable for 'institutional finance.'