Borrowing LP Positions

The Borrowing LP-Position, is more complex than typical LP positions one may be accustomed to. While the position is technically a 'short' position, at the onset it is better phrased as a 'potentially short' position. At the onset, you will not be borrowing anything, but the hope is that rates drop, and you are forced into a borrow position where you then earn fees.
With a standard borrow position, you are paying interest, and you may take the proceeds (i.e. borrowed tokens) elsewhere to (hopefully) earn more than the interest you are paying.

Negative Carry

With Infinity's current Borrower-LP position, however, and the underlying at 100% Borrowing, it is not possible to remove those proceeds from the account. That is, you will need to pay interest on the borrowing positions with no means to move those tokens elsewhere (to start), thus making the Borrower LP position an entirely net negative-carry position.
To offset this negative-carry, there are a number of options:
  1. 1.
    Higher Fees: We plan to ensure fees are high-enough to ensure that fee income > negative carry. This is our current approach.
  2. 2.
    Re-Deposit Proceeds: We can deposit those fees with an unrelated 3rd party protocol to earn carry (doing so in the background on a protocol or portfolio basis).
  3. 3.
    Investment Options: We build other financial products within Infinity that allow you to put these proceeds to work, e.g. synthetic futures carry, auto-rolling them into other lending positions, etc...
As we expand our product suite, and risk management, we look to build out options 2+3 so that the underlying fees are reduced, and LPs have more flexibility.

Collateral Liquidation

As this is a short position, your collateral may be liquidated in respect of your borrowing position should the value of your assets drop, or the value of the borrowed currency + LP position rise.