From CDP lending products to the fixed-rate lending market, has Inverse Finance successfully transformed?

1. Project Introduction

Inverse Finance is a CDP lending product based on Ethereum, which lends the stablecoin DOLA by staking cryptocurrency. Founded in 2020, the project was recommended by YFI founder AC and attracted market attention. At that time, the product of the project provided lossless investment around the stable currency Dai. Users deposited Dai in the agreement vault and received the deposit certificate inDai at a ratio of 1:1, and then the vault put Dai into the income aggregation agreement such as Yearn to obtain ETH , YFI and other token rewards.

But unfortunately, the project suffered two consecutive malicious attacks in 2022 and the product was deactivated. In October 2022, it transformed into a fixed-rate lending market.

2. Team

The currently public member profile is Nour Haridy, the founder of the project, from Egypt, who has been working as a Web3 development engineer since 2018. In an interview with Cointelegraph, Haridy introduced himself as a developer in the Ethereum field for several years, mainly designing gas-free Dai smart wallets, such as Metacash and Mosendo. Nour is currently doing Inverse Finance full-time, with 2.8w followers on Twitter, and has a small social influence.

Figure: Founder Twitter Crunchbase information shows that Inverse had acquired Tonic Finance for $1.6 million on April 30, 2021.

Figure: Inverse Finance public profile

3. Products

Inverse's current main products are the fixed-rate lending market FiRM and the stablecoin DOLA.

1. DOLLARS

DOLA is a decentralized stable currency issued by Inverse Finance, which maintains a 1:1 anchor with the U.S. dollar, and the supply and destruction of DOLA is managed by **Feds smart contracts. **

Note: Due to the oracle manipulation attack on Frontier (front-end), DOLA currently has some bad debts. These bad debts are actively redeemed through DAO, and the front-end products have been abandoned.

The Fed smart contract is controlled by Inverse DAO and is divided into three different types, but all of them can mint DOLA and supply it directly to the liquidity pool or lending market, and can also withdraw and destroy DOLA, thus affecting the price stability of DOLA.

Figure: Feds Type Cross-borrowing Feds: Frontier & Fuse, the front end is now deprecated.

Isolation mode lending Feds: FiRM lending market, FiRM market has a global DOLA limit and each asset market will also set a daily lending limit. We will introduce FiRM in detail below.

AMM Feds: Provide liquidity to protocols such as Velo, Convex, Aura, etc.

2. FiRM

In February 2021, Inverse and Anchor cooperated to issue the stablecoin DOLA. However, with the collapse of the Terra ecology and Inverse being attacked twice, the front end of the existing product was deactivated. In October 2022, Inverse launched FiRM, a fixed-rate lending product.

FiRM is an over-collateralized loan, which is consistent with other loan products. It is called a fixed-rate loan because FiRM is a fixed-cost loan based on DBR (DOLA Borrowing Right). To borrow DOLA in FiRM, users must hold DBR. A DBR represents a one-year DOLA loan fee. **The amount of DBR that needs to be spent every day can be calculated by the amount of DOLA to be borrowed and the duration of the loan, so users You can estimate the amount of DBR that needs to be paid and the cost of borrowing. ** To extend the loan period, you can add DBR to the wallet at any time.

The initial distribution method of DBR is airdrop: ① INV stakers who remain in the front-end application before October 30, 2022 will each receive 2,000 DBR; ② complete the lottery to get up to 1,000 DBR.

DBR can be circulated in the secondary market, so an increase or decrease in demand for DBR by borrowers may lead to an increase or decrease in the price of DBR. High demand will lead to an increase in DBR prices, which is a good thing for investors, but it will lead to an increase in borrowing costs for borrowers, thereby reducing the attractiveness of FiRM loans, which is not friendly to the development of the Inverse protocol itself . Therefore, Inverse launched DBR Streaming, which is to issue DBR rewards to INV pledgers. The DBR token reward can be obtained by staking INV through FiRM. The community can affect the price of DBR and user borrowing costs by regulating DBR emissions.

4. Fundamental data

1. TVL

The total size of the current TVL is 51.81 million US dollars. After the attack, the TVL has not improved. Beginning on June 12, the founders of Curve successively deposited CRV and cvxCRV to Inverse and borrowed the stable currency DOLA. As a result, Inverse’s TVL was greatly increased, and it gradually attracted the attention of other market participants.

Figure: TVL trend At present, only the founder of Curve has deposited about 23.63 million CRV and 6.73 million cvxCRV, with a total value of about 24 million US dollars. He has borrowed about 7.98 million stable currency DOLA, and his personal position (16.08 million US dollars) accounts for the largest proportion of Inverse’s TVL. Up to 31%, the development of the Inverse protocol is deeply influenced by Curve.

Figure: Curve founder account FiRM has currently been operating in "protected mode", so the lending market has daily lending limits and total supply caps for each asset type. Currently supported asset types include CRV, cvxCRV, gOHM, WETH, stETH. Among them, CRV and cvxCRV are the largest asset types. According to the proposal in May 2023, the daily loan limit of the CRV market is 1 million DOLA, and the supply limit is 10 million DOLA. The daily loan limit of the cvxCRV market is 500,000 DOLA. It is 6 million DOLA, the loan scale of the two is 10.16 million, and the loan amount reaches 63.5%. Due to the rapid increase in the supply of the two assets, the liquidity supply to the market was suspended two weeks ago for safety reasons.

Figure: FiRM lending market

2. DOLLARS

According to the official website data, the current total supply of DOLA is 61.8 million, of which 37.72 million are on Ethereum, accounting for 61.04%, followed by Optimism, accounting for 30.44%. The main places of adoption are DEX Velo on Optimism and its own protocol product FiRM. The DOLA team still pays more attention to the adoption of the second layer.

Figure: DOLA issuance scale

Figure: DOLA Distribution According to data from defillama.com, DOLA ranks 19th in the market value of the entire stablecoin market. Compared with DAI (4.337 billion), the leading decentralized stablecoin, it only reaches 1.4% of its market value.

Figure: Stablecoin Market Value Ranking After DOLA experienced the "hacking" storm, the token price has been relatively stable since October 2022. There have been two major price fluctuations recently. One was affected by the USDC unanchor incident on March 8, and the other was 4 The reason for the incident is currently unknown.

Figure: DOLA price trend

5. Economic Model

There are three types of tokens in the Inverse protocol: DOLA, INV, and DBR. DOLA is a stable currency product, which has been introduced in detail in the previous article. This part will focus on INV and DBR.

1. INV

INV is Inverse's governance token, and the current token usage is only for pledge and governance.

The complete economic model of INV is not yet known. The supply of tokens is issued by voting on governance proposals. The previous practice was to approve a coinage proposal every quarter, and formulate token emissions according to the liquidity strategy. The new proposal on June 30 determined that 60,000 INVs would be minted in the second half of 2023, so that DAO would continue to operate in the next 3 to 6 months.

The current total token supply is 305,000 pieces, and the pledge rate is 56.4%. 98,000 pieces were pledged through FiRM, and 74,000 pieces were pledged by the front-end legacy. The Inverse frontend will be deprecated in June 2022 due to malicious attacks.

Figure: INV Token Supply

2. DBR

DBR has no supply cap and is issued under the control of Inverse DAO. In the past year, 13 million pieces were issued, 12.72 million pieces were destroyed, and about 280,000 pieces were in circulation. According to Coingecko data, the current total supply of DBR is 4.646 million pieces.

Figure: DBR annual supply and destruction Since March this year, the amount of DBR burning has increased significantly. In June, due to the active CRV and cvxCRV asset markets, the burning amount was three times that of May, and the annualized burning also exceeded the annual issuance. DBR entered deflation.

Due to the increase in active loans in the FiRM market, in order to meet the growing demand for DOLA loans, the community proposes to increase the issuance of DBR from 10 million per year to 20 million per year.

Figure: DBR monthly supply and destruction From the consumption of DBR, we can see that the main demand in the near future is the CRV market, followed by OHM, and 0x7a16 is the Curve founder position.

Figure: DBR Consumption

3. INV and DBR

DBR is a necessary consumable in the Inverse protocol. There are real demand scenarios, and the demand for DOLA loans will directly affect the price increase of DBR. A rise in DBR prices means an increase in borrowing costs. In order to ensure good product development and curb borrowing costs, Inverse DAO will increase DBR emissions, increase DBR supply, and reduce DBR prices.

DBR is mainly produced by INV pledgers. The demand for DBR will motivate INV token holders to pledge and empower INV tokens. The two complement each other.

6. Assets and Liabilities

1. Assets

Assets held by the Treasury totaled $4.57 million, including $4.43 million held under Treasury contracts and $137,800 in Frontier reserves. Most of the assets in the Treasury contract are DOLA, with an asset value of 2.25 million US dollars, followed by DBR assets with a value of 1.53 million US dollars.

Figure: Treasury asset distribution

2. Liabilities

On April 2, 2022, Inverse Finance was attacked due to the exploitation of the vulnerability and lost 4,300 ETH, which is about 14.964 million US dollars. On June 16, 2022, it suffered another flash loan attack and lost about 1.2 million US dollars.

According to the official information disclosed on Discord on June 28, the bad debts of DOLA currently held are about 9.42 million US dollars. Since June 2022, the team has repaid 1.372 million US dollars, including collections from DWF and other entities OTC sales received funds.

The team is still selling INV and DBR assets to repay bad debts. The latest information:

1. Newly approved proposal: Mint 26 million DBRs and sell them to whitelist buyers at a 15% discount on the 30-day DBR TWAP price offered on Coingecko. The proposal was formally implemented on July 3.

2. The founder posted on Twitter that he purchased INV worth 250,000 USD from the Treasury at a 30-day TWAP price. The funds will be used to repay bad debts, and other buyers are welcome to purchase. The OTC time will last until July 7.

Figure: Twitter information of the founder Nour **Summary:**The current main problem of Inverse is the large amount of bad debts left over from history. At present, the income from the agreement and the sale of tokens are all used to repay bad debts, which relatively affects the expansion of products. As Aave reduced its risk exposure to CRV, the founder of Curve transferred part of its lending activities from Aave to Inverse, and the Inverse agreement was noticed by the market. Although the current liquidity supply for CRV assets has reached the upper limit, Inverse’s TVL is still steady. Growth means that the Inverse protocol is gradually being recognized by the market, which is a good sign of development.