Inverse Finance
Inverse Finance is a decentralized autonomous organization (DAO) overseeing the development and operation of the FiRM fixed-rate lending protocol, DOLA, a decentralized stablecoin backed by debt, and sDOLA, which generates yields. Established by Nour Haridy in late 2020, the protocol is governed by the Inverse Finance DAO, a community-driven collective. [1]
Overview
Inverse Finance is a decentralized autonomous organization (DAO) overseeing the FiRM fixed-rate lending protocol, DOLA decentralized stablecoin, and sDOLA yield generator. Governed by the Inverse Finance DAO, the project aims to provide decentralized finance (DeFi) tools for borrowing, lending, and synthetic asset creation. The FiRM protocol, a key component of Inverse Finance, offers a fixed lending rate, addressing the issue of volatile interest rates in decentralized borrowing platforms. Utilizing DOLA and sDOLA, it facilitates debt-backed stablecoins and yield-bearing assets. [1][2]
Users can access fixed interest rates and trade their borrowing rights through the protocol, providing flexibility and speculative opportunities. Inverse Finance's ecosystem includes liquidity pools, the FiRM protocol, and personal collateral escrow, enabling diverse DeFi functionalities. [1][2]
History
Launched on Ethereum in 2020 by Nour Haridy, the Inverse Finance DAO operates autonomously through its governance token, INV. In April 2021, it acquired Tonic Finance for $1.6 million, expanding its offerings to include features like quick payments and investment options. However, in April 2022, Inverse Finance faced a major setback when a hacker exploited the Anchor money market, resulting in a loss of $15.6 million. Another attempted hack in June of the same year caused a further loss of $1.2 million, primarily through price manipulation, resulting in a total net loss of $5.83 million in stable DOLA. To address these vulnerabilities, the project underwent a third-party audit of its smart contracts to enhance security measures and prevent future attacks. [2]
Products
FiRM
The Fixed Rate Market (FiRM) introduced by Inverse Finance addresses the need for stability in borrowing protocols within the cryptocurrency space. Using concepts like DOLA Borrowing Rights and DOLA, FiRM offers fixed borrowing rates to mitigate the volatility common in traditional borrowing protocols. DOLA Borrowing Rights (DBR) prove that a user can borrow a set amount of DOLA for a specified period at a predetermined rate. These rights are represented by ERC-20 tokens that enable the borrowing of DOLA on a 1:1 basis, available for purchase on compatible exchanges. [2][3]
FiRM incorporates the Accelerated Leverage Engine (ALE), allowing users to borrow against single collateral and magnify their borrowing up to eight times the original loan amount. While this feature entails additional risk, it provides a reliable multiplier based on fixed rates, appealing to entities seeking certainty in financing costs. To utilize FiRM and borrow DOLA tokens, users must initially deposit collateral such as wBTC, cvxFXS, DAI, INV, wETH, or CRV on the platform. Subsequently, they acquire DOLA borrowing rights to facilitate debt servicing and obtain the borrowed DOLA. [2][3]
DOLA Feds
DOLA Fed contracts regulate the supply of DOLA under the governance of Inverse Finance, aiding in managing DOLA's peg. There are two variants of Fed contracts, both capable of expanding DOLA supply by minting and providing DOLA to associated liquidity pools or lending markets and contracting it by withdrawing and burning DOLA. [4]
FiRM Fed
The DOLA Fed on FiRM oversees the expansion and contraction of the DOLA supply within its lending market. Governed by Inverse Finance, it imposes both a global DOLA limit and a market-specific limit regulated by the Fed Chair. [4]
DEX Liquidity Feds
The DOLA DEX Liquidity Feds oversee the expansion and contraction of DOLA supply within decentralized exchange (DEX) liquidity pools. These actions are responsive to fluctuations in demand for DOLA within specific pools. During expansions, the Fed mints and supplies DOLA directly to the liquidity pool, while contractions involve withdrawing and burning DOLA from the pool. These adjustments are made to maintain balance in the pool's DOLA reserves. [4]
Expansions may involve supplying DOLA backed by counterparty assets in the pool, ensuring that the Fed's DOLA liquidity remains separate from regular circulation. The process is reversed upon completion, potentially creating arbitrage opportunities for the DAO treasury. Expansions are triggered by increased demand for DOLA, often resulting from user deposits or swaps, while contractions occur when demand decreases. This mechanism helps stabilize DOLA's price peg to $1.00. [4]
The overarching goal is to achieve equilibrium for DOLA: [4]
This mechanism enables Inverse Finance to swiftly adjust DOLA supply within each liquidity pool, enhancing peg stability even during volatile market conditions. While DOLA is held in liquidity pools, the Fed earns rewards sent to liquidity providers (LPs), which are then directed back to the DAO Treasury. These rewards are recycled into liquidity pool incentives, reducing the DAO's liquidity expenses. [4]
Tokens
INV
The INV token is the native utility token in the Inverse Finance ecosystem, enabling governance and voting for platform upgrades. While the project operates with three primary tokens—INV, DOLA, and DBR—INV specifically offers governance and staking functionalities. As an ERC-20 token, it is compatible with self-custody wallets like Trust Wallet and MetaMask. [2]
Tokenomics
The INV token has a total supply of 555,000 tokens. Among these, 10% are designated for the team, 32.7% are allocated as community airdrops, and the remaining 57.3% are reserved for the operation and advancement of the Inverse Finance ecosystem. [2]
DOLA
DOLA operates as an ERC-20 token on Ethereum and Optimism, a Layer 2 solution for Ethereum, where it utilizes ETH as gas (OETH when bridged to Optimism). While also available on the BNB Chain, Multichain temporarily halts bridging. DOLA is a synthetic stablecoin pegged to the US Dollar, aiming to maintain a value close to $1 with minimal volatility. Unlike algorithmic stablecoins, DOLA is backed by retractable debt, ensuring stability. [5]
sDOLA
sDOLA is a tokenized wrapper (ERC-4626) around a DOLA Savings Account (DSA) smart contract, continuously rewarding DOLA stakers with DBR tokens. These rewards are auto-compounded into additional DOLA, progressively boosting the DOLA:sDOLA exchange rate. As a yield-bearing synthetic stablecoin, sDOLA generates yield from FiRM's fixed-rate lending market revenues. [6]
Staking DOLA for sDOLA encourages long-term holding, reducing liquidity costs per circulating DOLA and enhancing the protocol's unit economics. Notably, each DOLA staked into sDOLA corresponds to increased lending capacity on FiRM due to rising demand for holding DOLA, amplifying FiRM revenue. [6]
DBR
The DOLA Borrowing Right (DBR) is an ERC-20 token representing the user's entitlement to borrow DOLA within FiRM, Inverse's fixed rate lending protocol. Each DBR permits borrowing one DOLA stablecoin for up to one year without incurring interest. DBRs address the issue of fluctuating interest rates prevalent in traditional variable rate lending. DBRs offer users the predictability of borrowing costs by providing fixed-rate loans while eliminating many constraints associated with conventional fixed-rate lending in DeFi. Users benefit from both short
- and long-term flexibility with DBRs, which allows them to adjust the borrowing duration according to their needs. For instance, users can borrow different amounts of DOLA for varying periods, gradually consuming the DBR token with each borrowing transaction. [7]
Working Groups
The DAO empowers working groups with decision-making authority, granting them limited autonomy and budget through governance voting. These groups are tasked with various responsibilities, ensuring the DAO adapts to market changes, maintains product development, and fosters community engagement. The DAO holds them accountable through progress reports and budget renewals. Delegates oversee relevant Discord discussions, and working groups can be adjusted or dissolved through DAO voting. Additionally, the DAO can initiate new working groups by voting at any time. [8]
- Product Working Group spearheads product innovation and maintenance, overseeing the entire product lifecycle from ideation to implementation.
- Growth Working Group focuses on business development, marketing, and community engagement to drive DOLA circulation and revenue growth.
- Treasury Working Group optimizes treasury asset management to support the DOLA ecosystem, making dynamic decisions and extending liquidity management across multiple blockchains.
- Risk Working Group provides risk analysis, management, and ongoing monitoring for DOLA expansion and supports other working groups' efforts.
- Analytics Working Group empowers users with data access and analysis tools, supporting informed decision-making and providing analysis dashboards and API endpoints.
Partnerships
Frax Finance
On July 18th, 2023, Inverse Finance announced the launch of the new cvxFXS, a yield-bearing token generated through the staking and locking FXS tokens on Convex Finance, market on FiRM. The CRV and cvxCRV markets had proven highly successful, and the team anticipated a similar level of demand for cvxFXS. The introduction of the cvxFXS market aimed to provide FXS holders with liquidity for their FXS assets without requiring them to lock their FXS as veFXS. Unlike veFXS, which is non-tradeable and ineligible as loan collateral, cvxFXS deposited on FiRM continued to earn cvxFXS staking yield, boasting over 9% APY. [9]
Base
On August 31st, 2023, Inverse Finance's DOLA went live on Base, Coinbase's L2 network. [10]
DeFi Moon
On September 12th, 2022, Inverse Finance announced the onboarding of DeFi Moon, a boutique auditing firm, as the newest member of its security partner team. DeFi Moon's expertise would complement the internal QA and testing conducted by the Product Working Group, which is crucial in Inverse's refined, smart contract review process. This partnership was expected to strengthen Inverse Finance's security infrastructure, building upon its recent audit collaboration with Peckshield, especially as the company prepared to introduce a new line of products in the upcoming weeks and months. [11]
Velodrome
On October 12th, 2022, Inverse Finance announced its latest Fed deployment, the Velo Fed, as part of its continuous endeavor to enhance liquidity for DOLA on new exchanges. This new DOLA Fed was soon approved by Inverse governance and aimed to bolster the DOLA-USDC pool on Velodrome. [12]
DWF Labs
On February 23rd, 2023, Inverse Finance announced an exciting partnership and a $1,000,000 investment from DWF Labs, a Web3 multi-stage investment firm. [13]
Satin Exchange
On March 16th, 2023, Inverse Finance proudly announced its selection as a launch partner for Satin Exchange, a decentralized exchange and automated market maker set to launch on Polygon. As part of this partnership, Inverse will receive an expiring veNFT representing 1% of $ SATIN's initial token supply, providing valuable support as it enters the Polygon chain. [14]
ImmuneFi
On November 30th, 2023, Inverse Finance expanded its ongoing commitment to the Inverse bug bounty program by establishing a new vault on the ImmuneFi platform and allocating 43,000 DOLA to initiate rewards. This decision follows a thorough assessment of various host platforms' current status. ImmuneFi, a bug bounty and security services platform for Web3, safeguards tens of billions in users' funds across projects such as MakerDAO, Polygon, Arbitrum, Lido, Stacks, Optimism, and others. [15]
