Episode 28
IPOR: Building the credit hub for DeFi

Our guest today is Darren Camas, CEO and co-founder of IPOR, a fixed rate lending and borrowing protocol bringing interest rate swaps to DeFi.

In this episode, we exploring how IPOR is transforming the DeFi landscape with its innovative approach to interest rate benchmarks and swaps. We’re also getting an inside scoop at their newest offering, IPOR Fusion, the next evolution of on-chain asset management. IPOR Fusion makes it simpler and more capital efficient for everyone to earn yield, from individual degens to larger institutions.



Hey everyone, this is Dawei from Exponential and you're listening to Degen Responsibly, a podcast where we invite protocol builders to showcase their innovations, how they work, as well as do a deep dive on risk. Exponential is an investment platform that makes it easy to discover, assess, and invest in DeFi yield opportunities. We want to help you understand the trade-offs and opportunities so you can degen responsibly. Today I'm excited to have a special guest, Darren Camas, the co-founder and CEO of the iPore Protocol. We're exploring how iPore is transforming the DeFi landscape with its innovative approach to interest rate benchmarks and swaps. We're also getting an inside scoop at their newest offering, iPore Fusion, the next evolution of on-chain asset management, making it simpler and more capital efficient to earn yield for everyone. And we're bringing digital degens to larger institutions like DAOs and trad5 funds. All right, welcome to Degen Responsibly, Darren. Excited to have you on to talk about iPore and the latest things that are happening with that. Oh, thanks for having me. Excited. I like the name. So degen responsibly has a nice ring to it. Yeah, we've heard that a lot from our guests. You know, before we dive into iPore, I wanted to hear your background and how you got started into crypto and DeFi and how that led to iPore. I started my crypto career right around the start of Bitcoin in general. So I used to run BD for the number two exchange to Mt Gox back in the day in 2011. So the whole crypto world was much smaller at the time. There was Bitcoin, there was Litecoin and there was nothing else. I've seen the industry grow quite tremendously. It's a little humbling. We cheered when the entire market cap of Bitcoin, of all Bitcoins in circulation at that time was over $10 million. Up till now where we have BlackRock, you know, with the flagship ETF. So it's been a crazy ride. I've built across the stack twice on the exchange and brokerage side, once on the payment side. I built L1s, I was an advisor to a top 10 project. I built some of the early infrastructure for what was then called security tokens, now we refer to as RWAs. And actually pretty consistently been ahead of the curve. And sometimes by a decade, five, 10 years. So in 2014, for example, we were building out a protocol. We were thinking about doing something called like AuditCoin with an audit foundation and using zero knowledge proofs to be able to prove the solvency of crypto exchanges online. And that's still something that we don't have. I mean, we have some things like that now in 2024, but it's still difficult to prove the, it's easy, it's easy to prove the assets, not the liabilities. But you know, this was something that was at least five years ahead of its time and more like 10. But yeah, I mean, crypto is super cool. And I, you know, I came from starting with a Bitcoin D wallet, which was a really horrible user interface to interact with the blockchain, which was on horrible blockchain explorers to coming around to DeFi summer in 2020, looking at this really simple interface with this yield farming and the numbers clicking up, you know, kind of like spinning wheels of a casino. But it was really the slick user interface and the MetaMask experience that I said, okay, now your average person can interact with DeFi, they can interact with blockchain, there's a good enough interface. And there's a lot of fundamentals under the hood. There's a lot of fluff, but, you know, the fundamentals are quite strong in at least DEX and lending. And, you know, I really want to build at the forefront of the DeFi space. And that leads a little bit to iPort. Yes. It's funny, like what you were saying, like, we've definitely come a long way since since the beginning. Like my first cycle was 2017. And at the time, I think it was just, you're just mainly trading tokens on Coinbase. There wasn't really any DeFi protocols. I think my first one was actually PancakeSwap that launched on Binance. And I was like providing liquidity to a pool, I was like, oh, wow, this is sick. And now, you know, we've definitely come a long way with all the new infrastructure and protocols that have come since. I think that's a good segue into what you guys are building on iPort with the interest rates and derivatives. Maybe start with basics, like what is iPort and how does it work? Yeah. OK. Sounds good. So, I mean, let's go back to that providing liquidity at PancakeSwap, right? You are effectively taking on the passive or the role of a passive market maker. You have some mathematical curve that determines the pricing, but you are facilitating some economic action, which is someone trading, you know, token A to token B. And it's really cool because DeFi allows you to get education, financial education into some really cool things. And so if we look at DeFi, and this is what we're really evaluating at the end of DeFi Summer 2020, when I was, you know, I was speaking basically daily to my co-founder, Dimitar, we're looking at the space. OK. Let's sit back, let's remove the fluff, let's get down to fundamentals. We're very fundamentals-driven team and fundamentals-focused. So if you broke down the TVL of DeFi at that time, it was pretty much 50-50 indexes and lending protocols. And actually, one feeds the other. And often, the lending protocols are a proxy to speculation where people will borrow against their asset to basically leverage up. And then you have some proxy to the risk-taking with the interest rates. And then we said, OK, so let's go stupidly simple, right? In DEX, as an LP, you earn trading fees because someone is trading asset A to asset B. And in lending, you have a lender who gets paid by a borrower, and that's secured by something. So there's some base fundamental activity, you know, not rocket science. But let's look at market stability. Let's look at something like, you know, let's talk about market structure, market structure, financial instruments, especially let's look at the credit market. So we said, OK, so there's going to be a bunch of people that are looking at the derivative side on the DEXs. Someone's going to want to be the next decentralized BitMEX or FTX or Binance on the PERP side. And that's going to be Red Ocean. You know, you're going to have all the sharks that are tearing each other up to grab that. It's a lot of fees generated. It's very cool. But it's not necessarily the most interesting thing to create market structure. It's a very kind of short-term speculation instrument. You know, if you're talking about adding market structure on the assets or the commodity side, you're looking at more kind of dated futures. But we said, OK, so let's look at the other side that really no one is talking about, especially on the derivative side. And so let's look at the fundamentals of the credit market. So we're saying, OK, so if right now you can do something as simple and short term as a flash loan and return the money within a block, that's really innovative, but it's quite useless to the average person. The average person, the interaction they have with credit markets is they have credit card debt or they buy a house. Both of those, let's say that's a one-month instrument or a 30-year mortgage. And a flash loan is not really interesting. So for DeFi to be useful in the future, we have to start building term structure. We have to give the tools that create term structure, that help people analyze what their cost of capital is, that provide a benchmark to understand also what risks they're taking and to build instruments that will allow them to get to longer dated instruments so that they can finally, eventually, one day get to a home loan from a DeFi protocol. So we looked at what are the things that are prevalent in the traditional markets? What is the second largest market in finance? It's interest rates, interest rate derivatives. Number one massive is foreign exchange. And then coming in at number two, between 450 and 600 trillion notional, is the interest rate derivatives. And they underpin the global debt markets. So we looked at this and said, okay, so that's a really big market. It's quite an obvious opportunity. Why isn't anyone looking at it? What's the construction? And what's the basis, right? So one of the big derivative markets in interest rates is the overnight interest rate swaps. You're essentially trading a benchmark rate. Once was a LIBOR, now it's the SOFR. Well, I mean the SOFR for the overnight interest rate swaps. The LIBOR was used formally to fix something like 350 trillion in debt notes, in deal terms and derivatives. So the LIBOR was a benchmark rate. It was called the London Intrabank Offered Rate. And it's basically your cost of capital, right? So something like 18 London banks, depending on which currency, they got together and they said, okay, what do you charge for us to borrow from one another right now? You create a survey, you take off the high and the low values, and you print it once a day, something like 11 a.m. British Standard Time. And this number is a very important number because it underpins hundreds of trillions in something like mortgages, right? And there's also a giant swap market, interest rate swap market on that. So what we found is in the tradified sense, you have this rate that tells you what's the cost of capital. It's used to structure deals. It's used to create this term structure. But it was being manipulated by bankers. But bankers, they were over or under reporting it, and they were not calling up their friends, they were messaging them and saying, hey, that way, can you add or shave off one basis point because I'm long or short of this instrument? And they would pocket the difference. They would literally manipulate the instrument to make money from, yeah. So the LIBOR was discontinued because it was being manipulated for something like two decades. Everyone knew. But when you get tradified, when you get bankers and you give them self-reporting, well, there's a chance that there's going to be collusion. However, a benchmark rate is fundamental. So we said, what can we start with? When we do something that's like the LIBOR, we can do something DeFi native. We can do something better, something that's like, let's say, instead of asking corrupt bankers, we can do it smart contract to smart contract. So the whole protocol started with the IPOR. which is the inter-protocol overblock rate. So we borrowed kind of the name from the libel and we adapted it to DeFi, which is overblock between protocols, you know, and block over block over block, which is like what's real time in DeFi. So the iPort, it's a benchmark reference rate that's pulling from right now, Aave V2, Aave V3, Compound V2, Compound V3 on Ethereum. And it's printed on chain every so often. It comes from off chain to on chain because of just gas costs. And it actually, it just had the V3s weighted in, I think January of this year. So this is something that can move kind of at the speed of DeFi. So one of the governance considerations on, you know, for the iPort protocol is, let's say there's a new up and coming market, right? So, you know, you have like, you know, Morpho Blue coming up, you have the relaunch of Euler V2, you have Fluid, which is gaining traction, right? So who tells when these are actually constituents to the iPort rates while that goes through governance. So we have this thing that was really useful in TradFi. We have a better construct in DeFi and let's use it to adapt, you know, basically at the speed of DeFi. And then on the other side of that, we created a peer-to-pool interest rate swap. So, you know, if you look at how DeFi markets evolve, let's look at Uniswap. Uniswap V2 is peer-to-pool with a bonding curve or kind of this generalized pricing model. V3 is basically limit orders and V4 is advanced execution. So we started with a peer-to-pool model with an AMM and that's what we have now because we're still bootstrapping this market. It's a market for sophisticated players, but also good for structured products. So for example, there's three iPort rates, iPort USDC, USDT and DAI. And so those are trading the iPort index peer-to-pool. On one side, you have a passive liquidity provider, you know, like you mentioned at PancakeSwap, single-sided exposure. So USDC goes in, it becomes the balance sheet of a decentralized bank and that underwrites interest rate swaps. The AMM prices it, so the pool is underwriting a portfolio of swaps that can be both, you know, long, short, or pay fixed and receive fixed against the iPort rates. And it's also being deployed to the money market. So it's always active. As LP, you're really earning from three ways. Base money market yield, so let's say USDC on USDC, you're getting USDC from the fees for the swaps, you're getting USDC, and this is the potential loss case from underwriting the derivatives. So that can be, the payoff can be positive or negative. Over the last, let's see, August, I think we're almost coming up on 20 months of the protocol live on mainnet, out of 20 months, there's one month that's been a losing month. For a derivative protocol, that's pretty spectacular. You always assume some risk. And I think that was actually a neutral. I don't think there was a loss. And so the protocol, you know, over time has been extremely profitable for the LPs. And you're also getting liquidity mining rewards. And there is a special power iPort liquidity mining. You'll have to go to the page to check it out. It's too much to cover. It's actually maybe one episode by itself, but consider it a more fair market dynamic, an iteration or let's say an evolution beyond like the BE model. And it's definitely worth checking out on your own. And so that's the base yield. And then another thing that the protocol underwrites, and this actually got a lot of tracks when we launched it last December, is the LIDO state DTH rate, or what we call a stake rate swap. So you're actually trading the intraday volatility of the Ethereum staking rate. And the first one that's doing that, that the iPort protocol is underwriting is the LIDO state DTH rate. Yeah, that's a lot to unpack there. You guys basically took this LIBOR, this benchmark rate from TradFi, and you kind of ported it over to DeFi essentially. And the purpose of this rate is to offer like a risk-free, like a benchmark rate that DeFi users can monitor to analyze what their cost capital is, and they can benchmark your returns relative to this return. Right? Yeah, that's right. Okay. And then also you create something like a fixed rate product, right? So as the index moves, so does their cost of capital. So for example, if you're a borrower, you tend to be the pay fixed, because if your rate of borrowing increases, and you run the derivative instrument, they can net out, right? So this is exactly how these fixed rate loans or mortgages are structured in TradFi. You know, the bank will underwrite a portfolio of loans with an interest rate swap to net the risk, and they will add a premium and offer it to you. And then, so you guys offer interest rate swaps to users. These are essentially contracts that allow users to exchange cash flows based on interest rates. So either paying fixed or receiving fixed yields. Okay. So you, you kind of went through the, the, your tech stack where you have the Ipore index, you have the AMM and you have liquidity pools, like for like this, these three products, where, like, where is it the adoption being like, where do you see the most adoption right now for Ipore? Is it, are, are there protocols using this index or is it more like traders coming to Ipore to hedge their, their exposure on lending markets? Or do you see a lot of interest in the, in earning yield from the liquidity pools? Yeah, I think the, the, the first interest is earning yield on the liquidity pools. One of the things like, you know, as, as a past abuser, the Ipore LPs were getting the, some of the top risk, risk-adjusted returns in DeFi over the entire bear market, right? So, you know, if you went on Stablefish and sorted by the, you know, by the, by large pools on, you know, the major stable coins on Ethereum, Ipore pools will consistently top 10, the, the three pools. So if, you know, if you talk about degen responsibly, you look at the Ipore as like your benchmark rate of return. You can have this risk-adjusted yield. And if you have multiples of that, you have to ask yourself, okay, where, where is this coming from? And if you don't know, well, there's probably massive risk. And you have to understand, you know, basically what kind of risk you're, you're assuming, you know, what's the likelihood that that will get clawed back in one way or another, right? So for sure, the liquidity pools have been, you know, the top, the top place. But the protocol is also underwritten about 4.4 billion in notional open interest, and that's across, that's across the, you know, the four different instruments, one of the, one of the major kind of product market fits was the launch of the wrap state D. So we had a huge amount of, of interest, you know, the first, the first week, I think it underwritten, underwrote about a hundred million in, in open interest. They should be sitting around like 20 to 30 these days. But one of the things that surprised us, so we started with underwriting stable coins, the stable coin borrowing. Why? Because everyone is borrowing a stable coin at a time when we started the protocol, but the entire basis trade of last year was actually borrowing ETH to get stake, the exposure, right? Right. And so Ethereum interest rate and the stake rate are quite interesting and there's much more rational behavior by the, by the players around here in DeFi. So, so DeFi DGENs don't really, we found that they're not so sensitive to the rates that they're paying on stable coins, but they're extremely sensitive to what they're paying for Ethereum. I would say that, you know, over the last year, up until the LRT craze, where people were basically paying 30% to borrow Ethereum effectively, you know, farming pre TGE LRT tokens. And, you know, we saw just today that there was a, a little mishap in those markets, but typically pretty, people are pretty rational with their, with their Ethereum staking. So not just Ethereum staking, but also cost of capital because, you know, they want to hold on to their blue chip asset and, you know, hold on to that risk-free rate. So a lot of funds were set up last year, basically leverage looping this ETH, this ETH borrower staking loop. Yeah. And that is much sweeter when you put a interest rate swap on the ETH borrow side and the stake rate swap on the staking side, because you create this nice fixed rate product. And you don't have to worry in case the basis inverts because you have effectively, you know, hedged the, hedged the rate on both sides. And so ETH is where the protocol really kind of finds, not, not finds its fit, it shows its value, which is essentially a structured product from, you know, basically a three or four contract multi-call that creates this nice fixed yield with, and caps the risk. Could you, could you just explain that a little bit more? What do you, what do you mean by captures the risk? Oh, sorry, caps, caps the risk. Oh, caps the risk. So, you know, especially when you're leverage looping, you're extremely sensitive to the interest rates. Yeah. Right. And if the rate goes, especially if the rate inverts, then you're not re, you're not earning, you're paying. And if there's a significant event, like a DPEG, you need to be able to get out of that position, right? So having the hedges there is one thing. And another thing is actually having the, the infrastructure on the spot contract side and the monitoring to be able to de-leverage. So, so someone who's doing this looping strategy, they would come to I-POR and they would get a pay fixed on their borrow, on their borrow amount from Aave or Aavel? Okay. Yeah. I was looking at the, the statistics from your, from your page. There's a lot of good data there. I noticed like the notion of exposures for each of your assets. Like the stable coins all seem to be heavily dominated to pay fixed. Yeah. And the ETH one, like, I think to your point, it's more balanced. There's a good mix of pay fixed, adversity fixed. Like what, what, what's contributing to the imbalance on the, on the stable coin side? So on the stable coin side, we've always been playing with, so the, the models that basically the AMM is, the interesting thing is about. Val, when you're pricing interest rate derivatives, you have these things like regime shifts in DeFi that are very different. X times Y equals K, constant product formula. It works simply for pricing assets, but you can't use a simple construct for rates because rates are volatile. Rates are mean reverting and you have different regimes, right? So just a quick example. In DeFi summer, you might be in the 10 to 20% regime. If we look over the last bear market, we were in actually the one to 3% regime, where you're basically earning sub 3% in DeFi to take on the smart contract risk when you could go to treasuries to get five and a half. Now we're back in a high volatility scenario where you have the rates that go from eight to 12%. So the eight to 12% is very different than the two to 3%. Two to 3%, you can offer more leverage, but you're gonna get a lot less rate volatility. You know, when you get the rate volatility, you have to actually price that in on the AMM. And so in this new volatile rate environment, you know, the mispricing is typically going to the upside because you have this kind of mean reverting term. So most people are trying to protect their cost of borrowing, but because there's such volatility, not too many people are worried about the rate potentially falling. I think that would be my guess. Interesting. And you have more uniform oscillation on the Ethereum staking rate. Yeah. Wanted to go back to the risk side for liquidity providers. I think you need to touch on it. Like the liquidity providers are the counterparts for all the interest rate swap contracts, essentially. Just like, so given like with the stable coin pools being all mostly pay fixed. So does that mean in the case where, say rates were to increase significantly, then that would be a loss for the liquidity providers? I mean, they would have to stay increased and they would have to increase and remain increased, right? So because it's an exchange of cash flow, think of it like every so often, let's say you and I are on opposite sides of the trade. You are on the pay fixed and I'm the receive fixed. And we have a fixed rate. If the index moves above, then I'm paying you for that time period. If the index moves below, you're paying me. And at the end of the contract, you know, we compare our balance sheets and we settle the difference, right? So it's not like, for example, like if let's say you take a pay fixed at 10% and the rate jumps at 20%, you're not gonna get liquidated right away. And this is actually why we can offer, you know, it's something like 500X leverage for at least for the stake rate swaps. And I think it's capped somewhere around 300 for the interest rate swaps right now. Because there is, you know, on the quant side, it's about pricing the likelihood of these moves. And it's more effective as a hedging instrument. So you're more, you know, looking at these long-term moves, these rate regime shifts. You know, so for example, if we look, you know, late last year, you had the first big move of the DSR, which was basically, you know, MakerDAO bringing this treasury yield into the DAI savings rate, right? And this is one of the forces that push us up into a new rate regime. Well, let's say you're borrowing at 2%, you know, sometime mid-summer, and you don't realize that now your cost of capital is gonna be doubled or tripled, right? This is the kind of thing that you're going to want to price for. When the rate's at 2%, maybe your spread's gonna be 20, 40 basis points, right? In a very high volatility regime, that's gonna probably be more like, you know, 50, 100, 200, because you're looking for these like big regime shifts on a long scale. Okay, and then are there like cases where, besides the profit and losses from the traders' impact, are there any other risks that liquidity providers take? Yeah, I mean, it's always smart contract risk first. And for example, the smart contract risk is not just isolated in the IPOR protocol. The capital is deployed to also Aave and Compound. And these are yield sources chosen by the DAO. And I mean, they're chosen because they are over-collateralized, because they've been tried and true for, you know, time is a great proxy for security in DeFi, right? So you always assume smart contract risk, right? But the whole goal of the IPOR protocol is actually to contextualize risk and provide best risk-adjusted returns. That's interesting. So all the collateral and liquidity for the pools, those get deposited into the lending markets to earn that yield. Yeah, yeah. And this was one of the designs from the future. And actually, you know, maybe we can shift gears just a little bit. We have a new thing coming out called IPOR Fusion. And IPOR Fusion is actually something designed just for this. Okay. Yeah, let's dive into it. So, you know, for example, like the, you know, going back, IPOR pool, USDC goes in, it underwrites, it becomes a balance sheet, and it's deployed to the money market, right? But that capital deployment right now is fairly static. And we're looking at the whole lending space, the whole credit market space, and liquidity is becoming more fragmented, the rates more volatile, and this is both bad and good. It's bad for the average user, but it's great from an arbitrage perspective, right? So for example, how do you decide? Let's say, you know, you have a liquidity pool, you know, let's say you're running a money market fund. You have 10 million deposited into Aave Compound, Morpho Optimizer, you know, whatnot. How do you decide, you know, where to redeploy your capital, right? There's a whole, you know, if you take it out of one and put it into the other, there's a big chance you're going to affect the rates. You know, your departure will flush the rate up and it will compress the rate on the other side. So you're just going to do this kind of seesaw, moving it back and forth, paying this gas fees and not understanding why, right? But now we're in a time where there's, you know, all of these different yield sources. You have, you look at Morpho Blue, you have all kinds of different USDC bolts, right? You'll have Euler V2 coming out, you have Fluid, you have Agna. So there's all kinds of rates arbitrage opportunity, right? And then even if you extend this to like the leverage points farming, you know, if you look at Pindle, if you look at Gearbox, you know, these are all other opportunities. So maybe if you want to have a portfolio construction, you say, okay, I want to take, you know, 50% security out. I want to go 50%, you know, try to go leverage something, right? Well, you're going to have to do this manual execution or you're going to have to build out integrations, all of them by yourself, right? So we looked at this to say, okay, this liquidity fragmentation and rate volatility is a huge opportunity. So because of the way that we constructed the core IPOL protocol, let's take the USDC pool as an example. So we're going to unplug it from this vertical integration that just has Aave compound, or let's say in the DAI case, whereas Aave compound and the DSR, we're going to unplug that and we're going to plug it into what we call IPOL fusion and the fusion engine. So the fusion engine is this meta execution and integration layer, where basically the fusion engine has multiple fuses. Each fuse is an atomic action in an external protocol. So let's say, okay, I plug in the IPOL USDC pool into the fusion engine, and it's going to go between all of these top tier credit markets, right? It's going to be Aave compound, Morpho Blue, Euler, Fluid, and it's going to decide how to allocate these assets, contextualize the movements, understand what's the break even. Like for example, if the rate's 20 basis points difference, you know, it may not be worth the gas costs, right? But if that rate is sustained, you know, it's 2% for two hours, then my break even point is somewhere here and I should move the funds, right? What's the optimized portfolio construct? But there's a lot of actually simulations that you need to do. There's a lot of volatility considerations. There's also, you know, things like, you know, how much exposure do you want to any one market? What your effect will be, you know, across all of these different protocols. So optimal asset allocation is actually quite complex. So what we're designing Fusion to do is that this engine optimally allocates the IPOR USDC liquidity, and it's driven by an off-chain keeper, and that keeper is providing all the context and the inputs to rebalance. And so that's a flow that's useful for IPOR, but it might be also useful for you. So let's say you start up the Degenerate Responsibly Yield Fund. Okay, and let's say that you guys are going to also reach mom, pop, uncle Al, and you set up a fund structure, and they're gonna send, you know, your birthday money to a fund structure. You're going to wrap this, and you're going to give them access to on-chain capital. Well, let's say you have a good idea how you want to deploy the funds, but you don't have the technical know-how, and you also don't want to integrate with all of these different protocols. One integration into the IPOR Fusion Vault, you can set the strategy, you can choose a keeper, or you can run your own keeper, and you can effectively create a money market fund on top of this. And let's go even further down the risk spectrum. Again, you know, leverage points. Let's say you want to leverage points, and you want to actually leverage loop, you know, these across multiple venues. Well, you can build a kind of just leveraged looping strategy on IPOR Fusion. You can choose a completely different set of fuses, right? And this is a infrastructure that works for all three of these scenarios, and probably many, many more. So we're talking protocols with idle capital. We're talking, you know, basically, you know, yield farmers that are looking to take on, you know, external funds. So there's essentially a fee structure that you can take to, you know, to basically run a strategy on top of IPOR Fusion, or anything like this. And the good thing is, like, for example, let's say this first one, you know, or let's say there's a Dow Treasury that wants to get a 2% allocation to this leveraged, you know, points farming. Well, that fuse that's already built and plugged into the engine is now accessible to them. So they don't have to worry about speed of integration. They can actually adapt as fast as the market is moving and choose which fuses and strategies to change their allocation. So it also lowers. the integration for different parties. And it also silos risks. So for example, if you're a Dow treasury manager and you only wanna go to over collateralized markets and RWAs, and let's say the leverage point farmer gets hacked, you know, one of the end protocols they have gets hacked. The risk is siloed to that particular vault. So each vault is, they're exposed to the risk of the fuses that they choose. So it's basically compose your own strategy, choose your own risk level. And I mean, that's part of the beauty of kind of the infrastructure. And you know, if we look at something like, you know, portfolio optimization, on the other side of that is risk management. So, you know, if we look at something like, you know, there was just today, the easy ETH DPEG, you know, being able to exit those scenarios, it can be just as important, if not more important than actually optimizing your returns. So the other part of IPOR fusion is it's connected to this intelligence, it's connected to this keeper or alpha system, as we call it. And that can automate yield strategy, but can also automate the risk. So for example, if the TVL drops X percent within a certain block, you recall all funds, for example. So this is really, you know, an infrastructure for funds, for arbitrage, but also for risk management. And so this is something that we're quite excited about. So if we go back to that idea of leverage looping ETH for stake ETH and taking the swaps on either side, well, IPOR swaps will be fuses, the leverage looping will be fuses. So you can build a simple structured product inside of the fusion engine and get access to these strategies. So it actually really, really fits well, this idea of composability. It adds the possibility to do this nice risk management, this optimization. And also, you know, I mean, maybe the risk management is one of the most important parts, you know, if we're talking about degen responsibly. So we're quite excited about IPOR fusion. We think it's just an extension on the IPOR protocol product suite. And so, yeah, that's quite exciting for us internally. And we've been talking with some prospective partners, you know, kind of across all fronts on the integration side, on the fund side and getting a lot of feedback and putting it into the design. Super cool. So you kind of almost took that like the asset management that you were already doing on the unused liquidity. And now you kind of built this more optimized system to earn yield across different sources. And so that will be used within IPOR itself also with the- Yeah, IPOR will be the first user, but it's open, it's open, it's permissionless, it's generalized, right? So what's useful for us for deploying the excess liquidity is also useful for the IPOR protocol to build a structured product using the swaps is also useful for other people building on top of it. And that was one of the, you know, kind of the big vision around building IPOR fusion, this generalizable execution and intelligence layer that's really useful, you know, especially for these kinds of fund structures. And how do you determine like what strategies or fuses get added to the fusion? Okay, so let's break it down a little bit. So first of all, you know, let's start from the top level. And then, so a lot of these things will be done maybe at the DAO level and the user level. But fusion starts with at the top, there's ERC-4626 vault. And that is, that's taking in one asset. So let's say USDC. So the atomist is essentially the strategist. And an atomist, you know, it's like this philosopher around the, you know, the composition of the atomic structure of the universe. So they're sitting the strategy. So the atomist can choose what fuses that they want to use. If there's a fuse that is not integrated, they can ask the DAO or they can ask the end protocol to build a fuse for IPOR fusion. And they can also set their strategies. Those strategies are living inside the vault and they're executed by the keepers, which are called alphas. So alpha, it's like, you know, similar, you know, if you're thinking like the, you know, the solvers and DEX aggregation would be the alphas in IPOR fusion ecosystem. So these strategies can be extremely simple to very complex. Like, let's imagine you want to build Athena. You want to build this spot perps, you know, basis trade using IPOR fusion, you can do it, you know, but there's a huge amount of basically off-chain computation that you're going to have to use as triggers for this. So the more complex a strategy, you know, the alpha will probably take a, you know, a higher fee because it's effectively, you know, computation, you know, this is coming from the management fee. And yeah, so, you know, you can request different fuses. We have a bunch of fuses that are already being built, going also talking with some of the in-protocols to build their own fuses and fuses can be, you know, you can have all these different open source builders that can build fuses as well. So we're building a tool that will, that proves something about the fuses that it does what it says it does, right? there will be some base level for a fuse to be integrated that it passes this test. There will probably also be a work group inside of the DAO that tests the fuses. And then there's the potential for the audit of the fuse itself, right? So there's probably, there's a couple of different levels of security that someone can choose, but it's an open source ecosystem. So, you know, you have to meet the minimum criteria. The atomist chooses their own risk, and they basically construct their strategy. It's pretty cool. You also talked about how it acts as like a risk management tool as well, where you can, I guess, program these certain thresholds into the strategies, like monitor TVL change and, and withdrawal, if it hits a certain threshold. Is that like a similar thing where someone has to program that into the fuses and, and adds those to the... It won't be programmed into the fuses. It will actually be set at the vault level and it will be controlled or executed by the keeper, by the alpha, right? So the atomist chooses their, their risk management and the keeper, the alpha executes it. So, I mean, you know, it can be as simple as, okay, I don't want any more than, you know, 30% of my funds sitting in any one yield source, right? I want to diversify, you know, the counterparty risk on the protocols, or it might be, you know, the triggers to, you know, pause or remove all funds back to the vault. Is it like almost like a different protocol that's being spun out or what's the vision here long term? It's, I mean, it's one and the same. It's very much expanding the vision, but it's, it's part of the same protocol. Okay. So I guess protocols would just come to IPOR and then they would integrate with Fusion? Yeah. I mean, it depends on what side you are, right? If you're a protocol that wants to be, you know, why, why it would be interesting for a protocol is basically, you know, if, if you're a credit market, it runs parallel to different credit markets, right? But it's effectively trying to find the highest yield, which is actually allocating capital to where you have the highest utilization. So it's not, it's, it's neither friend nor foe, but it's allocating capital to the places that are actually needing it the most, right? So arbitrage actually brings the market into, into balance. And that also, you know, it has a nice kind of self-fulfilling role in the IPOR index itself. You know, as you arbitrage the markets, the markets come into, into balance and you have very nice kind of you know, the, the rates should basically converge to the IPOR because the IPOR is, you know, just a reflection of the different rates in the credit market, which also adds a huge amount of utility to the swaps. But yeah, also we, we spend a huge amount of time building out so many data sets and knowledge about the credit markets. And it's crazy that there's not more arbitrage on the credit market side. You know, everyone's crazy about arbing asset prices, but the credit markets are, it's the most fundamental thing that you have in, in, in finance, right? So the fact that we have this capacity to build it and also to help people, you know, basically optimize their, their, their returns, you know, this is a really an expansion of kind of the core, the core competencies, you know, that we've built up, you know, not only at IPOR protocol, but also at IPOR Labs. IPOR Labs will be one of the first keepers. Thanks for introducing that and explaining it. That's really interesting. Going back to the IPOR index, like how do you guys determine which lending markets get included within that that benchmark rate? Is that just, is that also through the DAO governance? DAO governance. So, you know, the, the first new inclusions were Aave and Compound V3s. And I think they got way good in January, February this year. So in my view, it's, it should be something like, you know, it's a lot liquidity based because liquidity, you know, especially if you're volume weighting it, you know, if you, if you add this really obscure, highly volatile, but really interesting protocol into the index, it's not going to reflect anyway, because it's a volume weighted index. Okay. The whole idea of also being a risk-free rate is that it should choose protocols that are a good enough proxy to risk-free, which what do we define risk-free at least in the white paper is the over collateralized markets. Cause maybe we don't have a better, we don't have a better contextualization for risk-free in DeFi. So at least for the time with it, we're, we're comfortable with this term. So I would imagine that, you know, as the, as the markets become more liquid, you know, let's say a pro or a protocol is rising, you know, someone can create a governance proposal to add it into the index. Actually the, you know, there's a, an active governance in the you know, in snapshot around the IPR protocol. And for example, the, the, the process to reweight the index with the V3s when it passed through governance, right. So this can also be an interesting you know, example of where a protocol might want to secure enough governance vote power to be able to at least have a say that it should be included in the IPR index. And also why is it important to get included in the IPR index? It's similar to like an ETF, right? If you're a stock in an ETF, you get purchased when someone buys the basket, right? Well, also, you know, if you're being included in the index and IPR fusion is diverting capital to this, let's call it the index. waiting, then, you know, you're also a beneficiary of liquidity. So there's all kinds of benefits of being included in an index. And so, yeah, I mean, but it's a process of decentralization. And, you know, it was built with the idea that, you know, it's not it's not an Ethereum construct. It's a DeFi construct. So let's watch. And at some point in the future, 50 percent of the credit market moves to a completely new L1 that hasn't even been the hasn't even been built yet. The rate dynamics are completely different than we see on IBM Compound, you know, that needs to be taken into consideration to be weighted in. And, you know, also that that's going to have to be an off-chain computation or some cross-chain because you're going to have a different weighting for that market that needs to be reconciled with markets on a different chain. So. It's not so straightforward, and, you know, we have this thing called the IPOR Manifesto, which describes the ethos of the project and that it will be very flexible, basically, depending on how the DeFi credit markets evolve. It's agnostic to one chain and it's loyal to the DeFi credit market. So if you have a DeFi credit market that is growing in huge popularity and should be basically included, jump into governance, get some governance voting power and propose it. What's the long term vision for the project? Do you think DeFi markets mature enough right now to to actually utilize all the services you're offering? Yeah, I would say I would say that still, you know, adoption and uptake of the industry derivatives is not the place that we'd like it to be, but it's extremely useful for building these products and actually it's something like under the hood that makes these products run that can be packaged into, you know, through the IPOR Fusion Vault for these nice structured products. Well, let's say, you know, a three month, you know, fixed rate leverage looping product, for example. Right. I don't think that it's too early for IPOR Fusion because IPOR Fusion is actually something that makes market maturity and kind of the set it and forget it mode. You know, once you have to design the strategies and the assets go in, they actually make the market more mature. So one of the reasons that the market is so fragmented is because you, as an individual user, you have to integrate or interact with all of these, manually move your funds, pay the gas fees. You have to build all of this infrastructure yourself. And there's actually a very few large, sophisticated DeFi players that can do this at scale. And IPOR levels the playing field for the average person because, you know, you and a bunch of other people can pool your assets to a single pool and get all the tools and sophistication of the big boys. So I think that actually has kind of perfect product market fit. And it's the really right rate environment to be launching it. And if you're thinking of that, you know, we talked so long about institutions are coming. All institutions are here. Institutions are here in the the digital asset space as speculators on crypto assets. But we also saw BlackRock tokenize a money market fund. And I would say that within a couple of years, there's going to be a decent amount of. Looking for on-chain exposure, right, and that's effectively wrapping DeFi exposure into either a traditional fund or a structure or something else like that. So, for example, this show was brought to you by Exponential. Exponential is on a mission to democratize access to the best yield opportunities in DeFi. Join Exponential.fi now to start your DeFi investing journey. Over-collateralized DeFi markets. So you can take your fiat subscription, you can turn it into USDC, you can deploy it into an IPOR fusion vault and you can return this great diversified yield product to your TradFi clients. But it's just as useful for a DeFi fund that has complex strategies inside of DeFi, or maybe it has a higher risk profile or maybe you're a treasury that needs to allocate your assets, but you're doing everything manually. And the two interplay together so nicely because they create market maturity. They create basically this nice term structure that we can start extending these instruments. So, you know, IPOR swaps, they started with a one month swap and now they're getting out to two and three months. But, you know, if you're getting these TradFi funds that are coming in and they're building these instruments, they're not interested in a one month product. You know, they're starting with six months, one year. Right. So the swaps are the perfect place where they were going to be hedging the risk. So you don't get TradFi unless you get a market structure, unless you get this yield curve in DeFi. And the IPOR index is the perfect instrument to bootstrap a yield curve in DeFi. So I think how the whole thing goes together, it's extremely comprehensively thought out. We're trying to build this and understand how the pieces fit together and then actually really to abstract the complexity. Because, you know, in all this complex infrastructure and architecture that we're talking about, let's say you as the end user, you push a button and you deposit into a vault. All the other stuff happens magically on chain. And so it's a much nicer one click experience for you. You don't have to know about the IPOR fusion engine. You don't have to know about the industry swaps. You don't have to know. about the IPOR index. So the goal that we want to give people is a one-click experience to get the best kind of risk-adjusted yields or the returns that match their goals and they can go basically with the atomist of their choice. They can deposit into whatever Plasma Vault meets their basically meets their goals and it's a one-click experience for them. That's what we want to create. Awesome. Yeah I think that's everyone's goal is to simplify, defy, and bring in the masses. Thanks Darren for joining us today. Appreciate all the insights you shared on IPOR and IPOR Fusion. Is there anywhere our listeners could go to learn more about IPOR or when can they expect Fusion to launch? Yeah go to IPOR.io or app.ipor.io. Follow us on Twitter IPOR underscore IO and actually all of the stuff, all of the major conversations happen inside of Discord. So there's a link on the website. IPOR Fusion will be launching in a few rolling steps. So the first launch will actually be you know IPOR eating its own food. So the the USCC pool will be plugged in to the Fusion engine on Arbitrum and that coincides nicely because there will be we're quite excited. We got a you know for the protocol it's getting some LTIP rewards. It's getting in ARB. We just got a grant from the Lido Foundation to you know for the Rapp State Deep Pool. We're going to be co-incentivizing an RWA pool with USDM. So there's a bunch of places where you can try it out there. We're also talking with a couple of different partners to launch with. These are protocols with idle liquidity and either right into the IPOR USCC pool or using the Fusion engine and then we'll roll it out with a couple of different launch partners, different fund managers that are really you know they have a track record of managing funds and yeah so that will be first the first within two months and then probably the whole suite by end of Q3 or early Q4 and that's including something like leverage looping. You know these are the these are the leverage vaults. When you have the when you're dealing with the the collateral it's a bit more complex so those contracts do take more time but yeah it will be a rolling launch and the first will be the asset allocation. Awesome. Sounds like there's a lot of yield opportunities coming up ahead. Right. Well thanks Aaron. It's been great talking to you. Thank you.