IPOR Protocol, developed by IPOR Labs in Zug, Switzerland, focuses on blockchain-based derivatives software. It consists of three main parts: the IPOR Index, Interest Rate Derivative(s), and the Liquidity Pool and Automated Market Maker (AMM). ^[1]

IPOR stands for Inter Protocol Over-block Rate. It takes inspiration from major traditional finance indices like LIBOR (London Interbank Offered Rate) and SOFR (Secured Overnight Financing Rate), adapting their concepts to Decentralized Finance (DeFi). The IPOR is a mid-market rate, not an offered rate, sourced block-by-block to approximate real-time conditions on the blockchain. ^[2]

Overview

IPOR is a set of protocols, smart contracts, and software forming Decentralized Applications (DApps) for Decentralized Finance (DeFi) focused on interest rate derivatives. The core IPOR infrastructure includes the IPOR Index, Liquidity Pools with an Automated Market Maker (AMM), and Asset Management smart contracts. The AMM supports Interest Rate Swaps (IRS). The system also includes a Decentralized Autonomous Organization (DAO) and a Treasury. ^[3]

IPOR Index

The IPOR Index is a benchmark reference interest rate derived from other DeFi credit protocols and is published on-chain using the heartbeat methodology. This index is central to the IPOR protocol and includes multiple indices representing the risk-free interest rate for various assets, such as IPOR USDT, IPOR USDC, IPOR DAI, and IPOR ETH. Additionally, there are time-based rates for each asset, such as IPOR USDC 1M, 3M, and 6M, reflecting different maturities as the yield curve develops. ^[3]

In credit markets, risk-free rates are fundamental, synthesizing the credit markets into a single metric that serves as a public good for structuring derivatives, financial instruments, and deals. The value of the IPOR Index relies on both the quantity and quality of assets it encompasses. The IPOR DAO governs the indices, ensuring they provide market transparency and utility as public goods. ^[3]

Liquidity Pools and AMMs

The Liquidity Pools and Automated Market Maker (AMM) together form a collective community counterpart for trades. Decentralized depositors can earn yields on their deposits by providing a trade counterpart for market participants. In return, liquidity providers receive a proportional share of net contract payouts, contract fees, and a leveraged risk-free return from the money markets. ^[3]

The AMM is a dynamic pricing mechanism that considers the current IPOR Index rate of a given asset and various market-driven data to price instruments, adjusting prices based on demand. This dynamic pricing function of the AMM manages the risk for liquidity providers. ^[3]

Derivative Contract and Swap

The derivative contracts are based on the IPOR rate and AMM pricing, establishing agreements between market participants and the pool. These contracts manage the terms between the market participant and the liquidity provider (LP) and allocate the corresponding contract payoff once closed. ^[3]

The first IPOR derivative is an interest rate swap, enabling a market participant to either pay a fixed rate and receive a floating rate (Payer) or receive a fixed rate and pay a floating rate (Receiver).They provide stability by allowing borrowers and lenders to control costs and forecast income. ^[3]

IPOR Token

The IPOR token is the native token of the IPOR protocol, distributed to participants involved in the project. It operates as an ERC-20 token on the Ethereum mainnet (L1 Ethereum). At the beginning, a total of 100,000,000 tokens were minted. ^[4]

The IPOR Token emission began with retroactive rewards for early protocol users, followed by the implementation of IPOR's Liquidity Mining model (Power Tokens). Initially, the liquidity mining emission rate was set at 10,800 pwIPOR tokens per day for the first 3 months. Following a successful vote in IPOR's Economic Working Group on April 25, 2023, the inflation rate was adjusted to 7,560 pwIPOR per day (equivalent to 0.35 tokens per block, per pool). ^[5]

With the introduction of the stETH pool on October 12, 2023, emissions were once again increased to 10,800 per day. Through IIP-13, the Economics Workgroup was granted authority to regularly adjust the total Liquidity Mining pwIPOR emissions and the allocation to individual liquidity pools. ^[5]

Staking

Staking the IPOR token to acquire Power IPOR (pwIPOR) follows a straightforward process. Users execute the "stake()" function with their IPOR tokens to receive pwIPOR from the staking contract. ^[4]

Power IPOR tokens are non-transferable to facilitate simultaneous liquidity mining, voting, voting delegation, and potential future uses developed by the IPOR DAO. To transfer Power Tokens, users must first unstake them and then transfer IPOR tokens. ^[4]

IPOR and pwIPOR tokens maintain a 1:1 exchange ratio. Even if pwIPOR generates yield, such as through a token buyback, tokens remain convertible at a 1:1 ratio. Holders of pwIPOR will observe a higher balance of staked IPOR tokens in their wallet. ^[4]

Voting within the IPOR protocol is exclusively enabled through Power IPOR tokens. Standalone IPOR tokens do not participate in voting. ^[4]

Power IPOR delegation allows users to delegate specific functions, like voting, to another address. While delegating voting power forfeits the ability to vote, Power IPOR can still be utilized for other purposes, such as liquidity mining. ^[4]

Unstaking Power IPOR and converting it back to IPOR tokens incurs a 14-day cool-off period for feeless redemption. Alternatively, an unstaking fee equivalent to 50% of the Power IPOR is applied for immediate redemption, with the remaining tokens distributed to other Power IPOR holders. ^[4]

IPOR DAO

The IPOR DAO is designed as a fully on-chain governance mechanism, enabling community token holders to make decisions regarding the protocol's development, maintenance, updates, proceeds, and finances. ^[3]

To organize community decision-making, several platforms are utilized: ^[6]

• Zealy (formerly Crew3) for onboarding IPOR "DAO Members" through tutorials.
• Discord for informing the community and enabling discussions.
• DeWork for managing work in the DAO, including feature requests and tasks, organized in "spaces."
• Snapshot for pwIPOR-based voting on formal proposals.

Funding

$5.55 million in strategic funding was secured to develop the IPOR Protocol. The funding was provided by a consortium of investors, including Arrington Capital, known for its portfolio in DeFi credit markets and stablecoins across various blockchains. Other investors included gumi Cryptos Capital, Space Whale Capital, New Form Capital, CMT Digital, and GSR, providing access and integrations to a diverse range of players from CeFi lending to DeFi, with deep roots in traditional finance credit markets and institutional investors. ^[7]

Additionally, investors such as C² Ventures, Bloccelerate, Mentha Partners, AG Build, Synaps, G1 Ventures, SOSV, Stateless Ventures, Next Chymia, Crypto Discover, NxGen, and Panony contributed expertise in investment banking, hedge funds, and crypto community building. Angel investors participating in the funding round included Tegan Kline of The Graph, Aaron Choi of Kava Labs, Nico Arqueros of dcSpark, John O'Connor of Input Output, and Joeri van Geelen of NxGen. ^[7]