Impermax Finance is an automated crypto lending platform for users of Uniswap and other decentralized exchanges.
Let’s consider a hypothetical
- You are a liquidity provider with $1,000 worth of ETH/DAI locked up in Uniswap.
- It’s currently earning you 25% apy.
- You believe this yield is going to go up soon, so you leverage your position to $10,000.
- The yield does indeed increase from 25% to 50% and you now earn $5,000 per year in returns instead of the $500 you might have otherwise. (That’s effectively 500% apy.)
How did you increase your position so easily? You took a loan to leverage your LP tokens times 10, and then you paid it back after earning those high yields. That’s only possible with the new Impermax lending platform.
Lending made for LP holders
Impermax is the industry’s first decentralized lending platform designed to let Uniswap liquidity providers use their LP tokens as collateral for loans.
Holding LP tokens that can’t be used as collateral has always been an opportunity cost for liquidity providers, and Impermax removes this cost for billions of dollars of value currently held in LP tokens. Since Impermax is permissionless, anyone can create a new lending pair and thus every token pair on Uniswap will be supported on day 1.
An economic advantage
One key part of the economic design is that Impermax only lets borrowers borrow the same tokens represented by their LP token collateral. For example, if you want to borrow against your ETH/DAI LP tokens, you will only be able to borrow ETH and DAI.
This matching of collateral type to loan type brings a number of interesting advantages. Since every loan is backed by assets that are matched to its value, the need for overcollateralization is nearly eliminated. Borrowers will be able to borrow higher amounts with lower liquidation risk than other lending platforms.
Borrowing tokens with more tokens
But if you already have some ETH and DAI locked in LP tokens, why would you want to borrow more ETH and DAI? To multiply your yield!
Impermax makes it possible to borrow tokens (like ETH and DAI), use them to provide more liquidity, receive more LP tokens, and borrow against them again and again. You specify the amount of leverage you want, and the Impermax app will repeat multiple times through this loop behind the scenes, all in the same transaction. This means it’s easy to leverage your LP tokens 10x or higher, all at once. So you’ll be able to earn 10x the yield or other benefits on those tokens, depending on your risk tolerance.
Choose your terms
The Impermax app lets you select the amount of leverage you want and shows the range of price changes that would result in your collateral being liquidated. You can choose any risk/reward level you want.
Providing liquidity with no impermanent loss
What about the lender? What’s in it for them? The lender receives a guaranteed interest rate, with loan repayment backed algorithmically. This means the lender can indirectly provide liquidity to Uniswap and earn returns with no risk of impermanent loss. In effect, the risk is shifted to the borrower. This will also be great for Uniswap since there’s now a better way for low-risk users to become liquidity providers.
Widespread economic efficiencies
Uniswap liquidity providers who want to earn with higher risk/reward can borrow, and users who want to earn with lower risk can lend. Impermax shifts risk according to each user’s needs and creates economic efficiencies across Uniswap. Impermax also plans to support other exchanges this year, extending these efficiencies across the AMM industry.
Of course Impermax takes a fee with every transaction, and these earnings are managed with a simple governance token called IMX. This token will allow users control of funds generated with this platform and all future products released by Impermax.
Long demanded, now supplied
Borrowing against LP tokens with leverage is a really unique service that’s sure to have demand. Many in the industry have assumed that LP tokens would be widely accepted as collateral someday, and this new offering makes Impermax truly the tip of the spear.
- Website: https://impermax.finance/
- Pitch deck: https://impermax.finance/Impermax-Pitch-Deck.pdf
- Whitepaper: https://impermax.finance/Whitepaper-Impermax-UniswapV2.pdf