Liquidity Risk

Infinity offers floating and fixed Rates markets, enabling lending and borrowing, against a certain number of collateral, along different contract tenors. During the liquidation of, for example, a fixed rate borrowing position (e.g. ETH-2Q), some of your cash and/or assets would be sold.

Liquidity Risk may arise where:

  • In the case of assets being sold, where the specific collateral only trades in a specific venue (or a limited number of venues), e.g. yield-bearing tokens such as cTokens & aTokens; conversely where you hold a fixed rate lending position (recall, which is a PV(Asset)), an off-setting fixed (or floating) rate borrowing position would be created

  • In the case of the fixed rate borrowing position, the liquidation system would seek liquidity by creating a fixed (or floating) rate lending position.

    • For floating rate positions, in addition to Infinity, there are also markets like Aave and Compound; however

    • For fixed rate positions, Infinity is the only market available to provide an offsetting position, in order to close the (being liquidated) fixed rate borrowing position, in the case of fixed rate markets.

Infinity's margin system takes into account these risks by applying larger stresses for fixed rate lending (asset) or borrowing (liability) positions, resulting in a higher margin required per notional unit, depending whether it's an asset or liability.

Last updated