IPOR Updates: IPOR Fusion, the Credit Engine for DeFi
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IPOR Updates: IPOR Fusion, the Credit Engine for DeFi
IPOR Fusion is a meta-DeFi credit market engine that transforms liquidity into pure power.
Navigating Web3 tides with focused insightsAuthor: Darren Camas
Translation: TechFlow
Liquidity in DeFi is fragmented, and new protocols can become popular overnight. We need an engine that leverages ever-changing market dynamics to turn interest rate volatility into opportunities for traders, liquidity stakers, asset managers, and protocols.
Since its inception, the IPOR protocol has facilitated over $4.4 billion in notional volume of interest and dividend rate swaps. IPOR focuses on interest rate data, derivatives, and structured products. Starting with stablecoin indices and interest rate swaps, it has now expanded to support native ETH yield equity rate swaps, and will soon extend to restaking rate derivatives for LRTs.
Introduction to IPOR Fusion
IPOR Fusion is a meta-DeFi credit market engine that transforms liquidity into pure momentum.
In nuclear physics, fusion converts atomic particles into plasma—a pure liquid form of energy. In DeFi, IPOR Fusion elevates liquidity, enabling it to flow between yield sources in pursuit of optimal returns.
One of the biggest challenges in DeFi is executing rapidly evolving strategies and adapting to new protocols. The DeFi yield landscape changes at light speed. Asset managers and liquidity stakers need the ability to react quickly and continuously seek out the best opportunities.
Imagine combining the best components of various aggregation and routing protocols into a single smart contract layer, connecting it to a super-intelligent node that automatically manages your assets.
You’d gain intelligent execution driven by advanced algorithms, quantitative financial insights, and artificial intelligence—curated by top-tier asset management minds in DeFi—for rotational trading, arbitrage, leveraged operations, and passive lending, all designed to identify the most profitable yield opportunities available for any given asset at any moment.
IPOR Fusion provides a single integration point across an expanding yield landscape, enhanced with an intelligent layer for automated rebalancing, optimization, and risk management.
With IPOR Fusion, each new integrated protocol amplifies network effects, benefiting the entire ecosystem. It generalizes integrations and focuses on strategy and optimization. Asset managers can leverage the latest pools, while users instantly benefit from emerging yield opportunities. It not only reduces operational burdens for capital allocators but also improves the efficiency and effectiveness of capital deployment across the DeFi yield landscape.
Why Fusion? Why Now?
Since DeFi Summer in 2020, DeFi money markets have evolved—from being dominated by oracle-based, cross-collateralized protocols to isolated, permissionless, oracle-free markets, and various hybrid models in between. Some markets focus on minimal code expressing elegant designs, while others offer feature-rich, ready-to-use platforms. Yield stripping and leveraged credit structures have evolved into massively leveraged pre-TGE token markets.
With so many different venues, integrations, and primitive components evolving simultaneously, widespread liquidity fragmentation, volatile interest rates, and an ever-expanding array of protocol integrations make arbitrage at light speed extremely difficult.
IPOR Fusion transforms liquidity into opportunity, perfecting the art of risk-adjusted yield management by harnessing the power of DeFi composability. Its value lies in bundling liquidity into yield strategies that flow toward the best opportunities.
IPOR Fusion consists of multiple parts, but you can think of it in two simple ways:
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An automated execution core
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An intelligent layer for optimization
Liquidity providers, credit participants, and leveraged players are connected through a single integration to optimize and manage their activities. This unified integration links execution with an intelligent layer, enabling automatic asset reallocation and risk management. DeFi deposits, credit, leverage, arbitrage, and operations typically require multiple integrations, complex logic, continuous monitoring, and manual execution.
Fusion simplifies this by serving as generalized DeFi credit market middleware, attached to a marketplace where top talent in quantitative finance, risk management, and AI curate signals and strategies.
IPOR Fusion offers DeFi users a single integration point to optimize yields, manage risks, and build customized strategies based on their risk-return criteria.
Who Will Use Fusion and How Does It Interact With Other Protocols?
Fusion is built for all credit market participants and introduces several new component tools:
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IPOR Fusion: The core execution layer and intelligent system
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Fuses: Smart contract connectors linking to external protocols
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Atomists: Asset managers and DeFi players who create and curate strategies
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Plasma Vaults: Strategies created by Atomists, into which users can deposit assets
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Alphas: Managers who provide on-chain intelligence and execution logic (similar to solvers in DEX aggregators)
Fusion Users
Protocols
Protocols with idle liquidity can use Fusion to optimize capital efficiency. For example, the IPOR liquidity pool itself will become a Fusion user, automatically optimizing its deposited assets. IPOR has always had this structure, and automation via Fusion can deliver even stronger returns.
Funds and Fund Managers
DeFi or traditional financial asset managers can build their own strategies on Fusion by selecting subsets of available Fuses to control counterparty risk, setting rebalancing conditions, and configuring fee structures.
DAO Treasuries
DAO treasuries can be major users of Fusion. They have a duty to protect the DAO’s assets while optimizing yield and minimizing risk. Treasury managers can choose to build their own strategies or deposit into other Plasma Vaults.
Individuals
Depositors can choose which Plasma Vaults to allocate funds to, and if they believe they can outperform others, they can even create their own Plasma Vault. Are you an influential KOL? Show the market your skills and become a fund manager.
Fuses: DeFi Protocol Integrations
Fuses are the key mechanism connecting the IPOR Fusion engine to different protocols. Each Fuse is atomic, immutable, and has limited functionality. Fuses can be created by protocols themselves, the IPOR DAO, or individual collaborators, and will undergo rigorous screening and security processes within the IPOR DAO. This implies there will also be an audit mechanism, and potentially DAO rewards for Fuse creation, curation, and revision.
The first Fuses will likely include leading DeFi credit markets such as Aave, Compound, Morpho Blue, and Gearbox, along with emerging protocols like Euler V2, Fluid, and Ajna. Following money markets, fixed-income markets will be integrated, including Pendle, Notional V3, Term Structure, and Term Finance. Fusion will also integrate different markets such as DEXs and perpetual protocols to enable functions like cyclic swaps and hedging.
IPOR interest rate derivatives and equity rate derivatives will also play a significant role in structured products.
Composable Structured Products
Another way to imagine Fusion is as infrastructure for structured credit products in DeFi. Take, for example, a leveraged cycle between borrowing ETH and earning stETH returns: add an IPOR ETH borrowing rate swap on one side and an equity rate swap on the other, and you get a fixed-yield vault. With speculative hedging, backtesting suggests this could squeeze out an additional 40% yield. While the ETH-stETH loop may be ending, similar flows and derivative combinations will play a crucial role in the post-point era of ETH money markets and LRT yields.
Fusion runs in parallel with existing markets.
By allocating capital to the highest yields, optimizing borrowing, and allowing users to leverage positions across the most efficient paths, it enables large-scale credit market arbitrage and enhances market efficiency.
It also plays a self-fulfilling role in the IPOR index. In an efficient market, interest rates will converge toward IPOR, as the index reflects the flowing sentiment of DeFi credit. Efficient markets, consistent rates, and tight swap spreads help build the yield curve in DeFi.
Testnet, Design Partners, and Collaboration
The IPOR Labs team is busy building Fusion in the lab. It will launch in two distinct iterations.
First, a deposit function with optimal asset allocation will launch, integrated with a select set of protocols through Fusion. If you're interested in early integration, please reach out. The IPOR liquidity pools for USDT, USDC, DAI, and stETH will be among the first to integrate Plasma Vaults.
Credit and leverage features with collateral and risk management will be built in the next iteration, enabling composable leveraged structured product vaults.
If you’re interested in becoming a design partner or participating in the testnet, all IPOR DAO collaborations take place via IPOR Discord.
Please contact us if you are:
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Open-source developers or protocols looking to integrate
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An asset manager with specific fusion and risk management requirements
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Interested in optimizing idle protocol liquidity yields (we’ll publish integration guides and welcome your outreach for integration support)
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An asset manager interested in building strategies using Plasma Vaults
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A quant or AI team specialized in solving complex logic to drive on-chain execution
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A top-tier mind interested in collaborating with IPOR Labs
We invite everyone to collaborate and co-build the next generation of an open, collaborative, meta-DeFi credit engine for asset management.
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