[IPOR Protocol] LTIPP Application FINAL

Arbitrum LTIPP Application - IPOR Protocol

SECTION 1: APPLICANT INFORMATION

Applicant Name: Darren Camas

Project Name: IPOR Protocol

Project Description: As a DeFi protocol, IPOR refers to a series of smart contracts that provide a benchmark interest rate and enable users to trade Interest Rates Derivatives, Stake Rate Derivatives, and in the future Restaking Rate Derivatives on-chain. That is possible by combining 3 core pieces of infrastructure: the IPOR Index, the IPOR AMM and liquidity pools, and Asset Management smart contracts.

Team Members and Roles: IPOR Labs AG was founded by Darren Camas and Dimitar Dinev in June 2021. Both founders come with deep experience in crypto, exchanges, financial markets, and angel investment and VC. Darren has been building in crypto since 2011 across exchange, payments, venture capital, L1, and data infrastructure. Dimitar has been building in crypto since 2016 across exchange, derivatives, venture capital, and DeFi.

Key roles:
Darren Camas- Co-founder and CEO
Dimitar Dinev- Co-founder and CSO
Mauricio Hernandes, PhD- Chief Scientist
Lukasz Muzyka- Head of Product
Mario- Lead SC
Pete, PhD- SC engineer
Rav- Infra, Devops
Konstantinos Tsoulos- Head of BD
IPOR Intern- Gigabrain Threadooor

IPOR Labs currently has 9 development members and 7 non development members. There are currently no expansion plans. The team has a deep background in quantitative finance, mathematics, data analysis, and enterprise software development with 3 PhDs. For details on the personal background of IPOR Labs members see IPOR Protocol - DeFi Fixed Rate Lending and Borrowing

Project Links:

https://twitter.com/ipor_io

Contact Information

Point of Contact: darren_ipor
Point of Contact’s TG handle: @pushdmc
Twitter: @DarrenCamas
Email: darren [at] ipor [dot] io
Do you acknowledge that your team will be subject to a KYC requirement?: Yes

SECTION 2a: Team and Product Information

Team experience: The IPOR Protocol is a derivative protocol with completely new concepts in DeFi. As such, it requires the proper experience to build a complex on-chain financial mechanism. The core protocol’s smart contracts are financial math intensive, and the protocol risk management and design also requires a strong math background. The IPOR Labs team employs three members with PhDs- 2 in applied mathematics and 1 in computer science. The tech team in general has built in the financial sector across banking, insurance, and payments in web2 prior to joining IPOR Labs.

From the financial markets side the founders have run and operated centralized exchanges in the past. The Chief Scientist has not only built a derivative DEX from the ground up, but also ran a market making desk for a crypto exchange wing of the largest securities dealer in Japan. The head of business development has over 10 years in TradFi working in hedge funds and trading macro interest rates, which is useful for applying this experience to the market dynamics.

The IPOR team has been shipping new features at a steady pace over the last 2.5 years and achieving important milestones in terms of product, user acquisition and community growth. The IPOR smart contracts code base has undergone 11 audits by top-tier audit firms, since 2022.

IPOR Milestones

  • Ethereum mainnet launch (August ’22) introduced IPOR indices and 28-day swap tenors (duration of the instrument) for USDC, USDT and DAI, sourcing rates from Aave and Compound.

  • Power Token Liquidity Mining launch (January ’23) allowed TVL to grow from $2m to a peak of $43m over the course of a couple of months. IPOR pools have been attracting deep liquidity in USDC, USDT, and DAI. Since inception, these pools have provided some of the top APR for stablecoin depositors in all of DeFi.

  • Upgrade from IPOR v1 to v2 (October ’22)

    • The overhaul of the smart contract architecture led to increased gas efficiency and improved composability, enabling things like Zapping into the liquidity provision with one click, and setting the stage for composable structure products on the roadmap for 2024. Major branding change was introduced, to reflect the Credit Hub of DeFi vision.
  • IPOR instruments and risk engine overhaul

    • With v2 came the extension of tenors from the initial 28-day swaps to two and three-month tenors. The extension of rate tenors is crucial to developing a yield curve in DeFi, which is one of the core goals of the IPOR Protocol and can benefit all market participants. A functional yield curve brings maturity and structure to DeFi credit markets.
  • Stake Rate Swap (SRS) and intraday Lido Rewards rate

    • The SRS is the first IPOR product venturing into LSD land. While the IPOR Indices focus on the risk-free rate of the DeFi money markets for stablecoins, the ETH staking rate is widely considered the native risk-free rate for DeFi.
  • Risk engine and derivatives pricing improvement bringing peace of mind to LPs, allowing for more competitive spreads that price for inventory risk of the AMM. Cumulative volume of swaps underwritten to date is approaching $4.5bn given a strong boost by the introduction of the SRS.

  • Successful Arbitrum launch

    • Arbitrum users can now trade the SRS & participate and earn quality yield as LPs in the wstETH pool with one click.
    • The IPOR token is now trading on Camelot.
  • Steadfast transition to the IPOR DAO

    • 18 governance proposals brought to Snapshot votes with active participation of the community.
    • Formation of key workgroups (governance, economic, marketing), which has led to many protocol stability and growth initiatives.
  • Community buildout, growth and social media presence, utilizing a number of community management/engagement programs, organizing weekly community hangouts and consistently producing top quality content to educate users on technical concepts, the IPOR roadmap and to promote the values of Decentralization.

    • Followers: Discord : 21.15k X: 19.2k Linkedin: 3k Medium: 3.9k
  • Engagement with majority of crypto native funds globally, retail and DeFi community (DegenScore, DeBank) attracting LPs and traders. Strong network and awareness within the DeFi ecosystem with other protocols across Ethereum mainnet and Arbitrum.

  • Active participation in events, conferences, podcasts and x-spaces, including well attended weekly hangout on discord/x.

What novelty or innovation does your product bring to Arbitrum?

IPOR is bringing interest rate swaps - one of the biggest derivatives markets in TradFi and an essential component for fixed income and liquid rates markets - to Arbitrum. The IPOR index rate benchmarks will be printed on-chain in real time and be available as public goods to Arbitrum DeFi users. The addition of the Stake Rate Swap sets the base for structured products around ETH yield. IPOR ’s medium-term vision to become the Credit Hub of DeFi, essentially a one-stop-shop for all things interest rates on Arbitrum, will facilitate the bridging of liquidity and superior user experience for DeFi market participants.

Not only is the protocol novel in DeFi, but it is quite complementary to other derivatives in the Arbitrum ecosystem. Where Arbitrum is strong on the perpetual futures, options, and bond coupons market, there is no interest rate derivative protocol since the discontinuation of Voltz. Interest rate derivatives could become a critical piece of structured products for Arbitrum users which would give a more diverse product offering to the already financially saavy users.

Is your project composable with other projects on Arbitrum? If so, please explain:

Composability lies at the core of the IPOR protocol, evident in both its smart contracts building upon other foundational DeFi protocols (such as Aave, Compound, MakerDAO, Lido, and Ether.fi) and the ability for IPOR core constructs to serve as fundamental building blocks for other applications.

​​Examples of projects on Arbitrum that could leverage IPOR as a building block, include on-chain asset management vaults (e.g. Vaultka, Solv) that may incorporate IPOR liquidity pools and soon to be released strategy vaults, as well as DeFi yield strategies integrating IPOR swaps to fix interest rates (e.g. introducing fixed funding rates for Contango perpetual contracts, or implementing leveraged staking with fixed rates on top of Radiant, Silo. Options protocols (e.g. Rysk, Premia) could use the IPOR index data as a basis for the yield curve related inputs for their pricing models or margin related calculations.

The IPOR Protocol is not yet integrated with other protocols on Arbitrum, however the launch strategy and LTIPP application is done with composability in mind. For example a USDM pool will soon be supported, and after that a new swap instrument which could be turned into a structured product using the USDM pool, the IPOR Interest Rate Swaps, and an Arbitrum money market position.

Do you have any comparable protocols within the Arbitrum ecosystem or other blockchains?

Notional, Pendle and Term Finance (Ethereum) are comparable protocols within the fixed rates and interest rate derivatives vertical. These protocols are complementary to IPOR. Trading across these different venues can bring better pricing ,efficiency and liquidity to DeFi on Arbitrum and facilitate the construction of a term structure of interest rates within the Arbitrum ecosystem.

Relevant usage metrics - Please refer to the OBL relevant metrics chart . For your category (DEX, lending, gaming, etc) please provide a list of all respective metrics as well as all metrics in the general section:

Daily Active Users: A time series metric representing the daily count of unique addresses interacting with the protocol’s contracts.

Daily User Growth: A time series metric representing the daily user growth (in addresses) interacting with the protocol’s contracts.

Daily Transaction Count: A time series metric representing the daily number of transactions interacting with the protocol’s contracts.

Daily Protocol Fee: A time series data representing the daily total protocol fee generated. For example, swap fees, borrowing fees, etc., comprising all economic value generated through the protocol, contracts, apps, etc., by users.

Daily Transaction Fee: A time series, daily total transaction fees generated daily by interactions with the protocol’s contracts.

Daily ARB Expenditure and User Claims: Data on individual ARB incentive claim transactions made by users, as incentivized by the protocol. It should include the timestamp, user address, and the claimed ARB amount. The spent ARB will allow for the normalization of growth metrics.

Incentivized User List & Gini: The list should include users incentivized by the protocol along with their performance metrics. For instance, if trading volume is incentivized, this would be a list of traders with their respective trading volumes. If liquidity providers are incentivized, it would include a list of LPs and their liquidities in USD. Protocols should also strive for more uniform engagement levels across a wide user base for long-term sustainability, which will be measured through a gini coefficient across reward recipients.

TVL: A daily time series expressed in USD.

Open Interest: A daily time series measured in USD.

List of Traders: A comprehensive record of addresses or entities engaged in trading activities. This list should include trader addresses and the volume of trades executed.

List of Liquidity Providers: A compiled list of current and past participants per pool who have provided liquidity during the incentivized period of the protocol. The list should include LP addresses, their current liquidity in USD, time-weighted liquidity in USD, and the duration of liquidity provision.

Do you agree to remove team-controlled wallets from all milestone metrics AND exclude team-controlled wallets from any incentives included in your plan: Yes

Did you utilize a grants consultant or other third party not named as a grantee to draft this proposal?: No

SECTION 2b: PROTOCOL DETAILS

Is the protocol native to Arbitrum?:

The IPOR protocol first launched on Ethereum Mainnet, but is also already live on Arbitrum.

On what other networks is the protocol deployed?:

Ethereum Mainnet.

What date did you deploy on Arbitrum mainnet?:

30.01.2024, transaction ID: 0xb575e97c64fe2a07fff6c7053842e4f9e90158c3e0681ef0e869516fcec0676d

Do you have a native token?:

Yes. IPOR Token | IPOR Protocol

Past Incentivization: What liquidity mining/incentive programs, if any, have you previously run? Please share results and dashboards, as applicable?

Yes the IPOR Protocol has now run a liquidity mining program for ~13 months, primarily on Ethereum mainnet and now on Arbitrum since the launch of the wstETH pool. The Liquidity Mining program details can be viewed here: Liquidity mining | IPOR Protocol

25% of the total supply is reserved for liquidity mining emissions. The emission period is at least 6 years at the current emission rate.

Current Arbitrum statistics (since Feb 8 launch)
TVL: $0.67m
LPs: 46 unique
OI: $5.75m, $7.85m cumulative

TVL history: https://dune.com/ipor/ipor-protocol (Arbitrum to be added), also in the metrics section above

Current Incentivization: Liquidity Mining, Trading Competitions

Have you received a grant from the DAO, Foundation, or any Arbitrum ecosystem related program?

No.

Protocol Performance:

Peak TVL: $43M

Current TVL: ~9M

Cumulative notional swap volume: $4.35B

https://dune.com/ipor/ipor-protocol

Protocol Roadmap: [Describe relevant roadmap details for your protocol or relevant products to your grant application. Include tangible milestones over the next 12 months.]

In Q1 IPOR launched the first pool on Arbitrum, a wstETH pool trading SRS. It will also launch a wUSDM pool in accordance with IIP-18.

In Q2 the DAO will analyze and propose potential other pools and instruments coming to Arbitrum focusing on up and coming stablecoins and LRTs.

In Q3 and Q4 the IPOR Protocol will build out the structured products suite, analyzing the Abritrum landscape of money markets, fixed income protocols, LST and LRT yields to created vaults where users will be able to take advantage of yield strategies between stablecoin and ETH markets.

The roadmap is continuously being updated and can be found here: IPOR Protocol Roadmap | IPOR Protocol

Audit History & Security Vendors:

Audits: Audits | IPOR Protocol

Security Incidents:

Never hacked or any smart contract exploits.

One economic/oracle attack (the oracle itself was not attacked, however the interest rate utilization on Aave and Compound were targeted): IPOR USDT Index: Sustained Oracle Attack and Risk Mitigation | by Darren Camas | IPOR Labs

The pools underwrote a total derivative loss of less than 0.5% while earning an average APR of over 96% at that time through real yield and liquidity mining.

SECTION 3: GRANT INFORMATION

Requested Grant Size: 112,500 $ARB

Justification for the size of the grant:
The grant is aimed at helping bootstrap the liquidity needed for IPOR pools to be able to service the demand for interest rate swaps on Arbitrum. The incentives are split into mainly 3 groups - incentives for liquidity providers on IPOR, dex LPs on Camelot and incentives for interest rate swap traders (hedgers).

As of this writing, there is approximately $650M TVL between some of the top credit markets on Arbitrum, with the vast majority of lending and borrowing happening on the wstETH - ETH loop. A single market (Aave V3) has more than $150M wstETH lent and $100M ETH borrowed on variable rates. With the introduction of LRT tokens to Arbitrum and new credit markets aimed to launch this activity is expected to grow multiple times.
As IPOR itself is bringing new instruments to Arbitrum, most notably SOFR-based swap via USDM pool (check Snapshot) which has recently passed DAO governance, we anticipate the demand for interest rate swaps to exceed $100M in notional open interest just between those 2 products.

The reasoning behind this grant amount is to ensure fair competition with respect to other projects on the Arbitrum ecosystem. Taking previous allocations from STIP into account and normalizing by TVL we observe a clear trend across the board: most incentives amount to an approximate 10% APR on $5M TVL. We consider this as a benchmark for a minimum viable issuance after comparing with ongoing programs on projects such as Silo, Notional, Timeswap, Umami and Stella among others. With that in mind, we have split our distribution into 3 separate stages that are outlined in section 4. In each phase we expect to see growth in both TVL and Open Interest (OI) such that we will gradually increase the amount of rewards as TVL grows, ensuring a steady APR from $ARB rewards. This way we can ensure that at all stages we stay competitive while ensuring that we are not overspending or asking for excessive $ARB tokens, since the amount we are asking for is the minimum viable relative to what’s being offered by other ecosystem projects.

Grant Matching:
Currently IPOR issues 1500 $IPOR tokens per day for the wstETH pool, with this amount to increase with the introduction of new pools (read above, USDM and also a currently in the works LRT pool)

The wUSDM pool which will be launched in the future could also have a matching grant from the Mountain Protocol team if both projects are selected.

Grant Breakdown:
Our objective is to grow the IPOR liquidity pools to approximately 5M TVL which would allow the protocol to underwrite and sustain about 50M of Open Interest on the different tenors (28 days, 60 day, 90 day)

Drawing a comparison with other Arbitrum protocols, the expectation is that to reach those objectives we need to incentives the liquidity providers with about 10% yield from ARB at 5M TVL which for a 3 month program accounts to approx 62,500 ARB.

25,000 ARB will be allocated to traders as incentives for opening interest rate swaps, where the objective is to use ARB as a rebate for trading fees (0.30% on average) for the duration of the program, with potentially shifting some of the ARB tokens allocated for LP’s to traders if the TVL growth is outpacing the trading volume growth.

25,000 ARB will be allocated to the IPOR/WETH pair for new DEX liquidity providers on Camelot. The objective of this incentive is to bootstrap sufficient liquidity on the dex to facilitate seamless and low slippage onboarding for IPOR users on arbitrum. Currently, this pool is about 170k tvl with 99% of that coming from protocol-owned liquidity that would be excluded from those incentives. The objective is for the pool to grow to 500k TVL which would not only vastly improve the experience for Arbitrum users but will also prompt our Ethereum users to migrate their positions to Arbitrum. The amount is figured to bootstrap a pool that can give LPs a 40% APR.

Funding Address:
0x7D002e4F8B3ad8fdf782a10e3744c777eeB579Eb

Funding Address Characteristics:
3/5 Gnosis safe multisig with hardware wallet signing

Treasury Address:
0x7D002e4F8B3ad8fdf782a10e3744c777eeB579Eb

Contract Address:
DAO Treasury wallet: 0x7D002e4F8B3ad8fdf782a10e3744c777eeB579Eb
DAO Operations wallet: 0xff560c41eacd072AD025F43DF3516cB6580C96bF
Funds will be transferred from the DAO Treasury wallet to the DAO Operations wallet for dispersion to end users or any liquidity mining smart contracts.

SECTION 4: GRANT OBJECTIVES, EXECUTION AND MILESTONES

Objectives:
Bootstrap sufficient liquidity to underwrite demand for interest rate swaps on Arbitrum. Numbers and estimations are posted above in the grant breakdown.

Improve market efficiency and drive interest rates stability, offering venues for both borrowers and lenders to access fixed rates. As an example, options platforms might use the IPOR index as an input on their Black-Scholes pricing to reflect the state of DeFi interest rates.

Augment the innovation surface of the Arbitrum ecosystem by providing the core building blocks for better risk management practices, as well as the development of fixed income and structured products.

Be a destination for vaults and yield aggregators, adding diversity to their risk strategies and empowering them with governance power over both the Arbitrum DAO and the IPOR DAO (via ARB LTIPP incentives and IPOR liquidity mining).

Execution Strategy:
Allocate ARB incentives to liquidity providers and traders of interest rate swaps. The distribution method continuously tracks the state of the pools and swaps taken. Monitoring and weekly revision practices are already in place, as the IPOR DAO’s economic workgroup is assigned to tracking token emissions and their allocation to liquidity pools based on utilization, amount of pwIPOR delegated, and increased demand.

What mechanisms within the incentive design will you implement to incentivize “stickiness” whether it be users, liquidity or some other targeted metric?
IPOR already runs an innovative liquidity mining program (Liquidity mining | IPOR Protocol) which is designed around stickiness and user alignment. We can introduce some of the same mechanics that are tried and proven to the ARB incentive program.

The power IPOR token dynamics prioritize a fair and broad distribution of governance power among those users committed to the long-term success of the protocol. This logic is embedded into the pwIPOR emissions curve, assigning a multiplier to each liquidity provider based on their ratio of pwIPOR to liquidity being provided. A similar ratio would be provided for the distribution of ARB incentives, ensuring that liquidity providers have skin in the game and earn their share of voting power on the Arbitrum DAO.
In short, power IPOR is built for distribution, fair market dynamics, and long term alignment between liquidity providers and protocol.

A cooldown mechanism is also in place to anticipate and better predict user behavior. This cooldown period can be adjusted via governance voting to extend the duration.

Specify the KPIs that will be used to measure success in achieving the grant objectives and designate a source of truth for governance to use to verify accuracy.
As described above, even though arbitrum is the 2nd largest DeFi chain after Ethereum, the credit market activity on Arbitrum is lagging mainly because not enough protocols have developed tools to cater for that growth. Introducing innovative DeFi primitives like the IPOR interest rate swap helps promote more activity in the credit market sector. By offering a hedging instrument like IPOR we can expect borrowing activity to increase, as users will now have a destination to hedge and fix their rate in a capital efficient manner. This can lead to an increase in TVL as well, since we can expect more looping activity on money markets, leveraging yield-bearing assets like stETH or USDM as collateral. This growth prospects should be reflected in both the TVL of IPOR pools as well as the amount of Open Interest. For that reason we advocate for using these 2 metrics as the main variables to track performance.

To accurately measure the success of the grant we suggest using the following KPIs to track the growth of the protocol:

  1. Total Value Locked: to determine how much net new liquidity has entered the IPOR pools. This indicates more trust in the pricing mechanism, and participation in the protocol to earn yield, aligning with our objective to become a credit hub that helps to bring more stability to the Arbitrum ecosystem.
  2. Open Interest: to track the demand for interest rate swaps and quantify the volume and capital efficiency of IPOR swaps

Grant Timeline and Milestones:
Incentives are intended to attract liquidity providers to the IPOR pools, deepening the liquidity and increasing the capacity to withstand increasing amounts of volume. As the TVL scales, so does the activity on swaps, resulting in more attractive spreads for traders. Deeper liquidity can support more utilization and lessen the impact of swaps on the “demand spread”, which is a mechanism built into the AMM to ensure pool balance and manage risk for LPs.

We can expect TVL to scale as the additional wUSDM pool is deployed. Once the initial liquidity is provided, there will be an impasse period until swaps can be opened in that pool. Meanwhile, the TVL and Open Interest of the wstETH pool can be tracked and measured in a timely manner from the start of the incentivization period.

Therefore, the KPIs will track the TVL of both the wUSDM and the wstETH pool, as well as the Open Interest, although we might expect a delay when it comes to tracking the Open Interest and volume of the wUSDM pool, since the oracle and pricing mechanism need to be fleshed out and set via governance vote.

The amount allocated to each pool is subject to the periodical reviews (at least every two weeks) conducted by the IPOR DAO’s economic workgroup.

  • Weeks 1-6 for bootstrapping:
    • How much to distribute – 12,500 ARB
    • What we expect TVL and OI to be by the end of the period
      1,500,000 TVL : 15,000,000 OI
  • Weeks 6-9 for scaling with an extra push:
    • How much to distribute – 25,000 ARB
    • What we expect TVL and OI to be by the end of the period
      2,500,000 TVL : 25,000,000 OI
  • Weeks 9-12 for a final boost:
    • How much to distribute – 50,000 ARB
    • What we expect TVL and OI to be by the end of the period
      5,000,000 TVL : 50,000,000 OI

How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?
Grants will be used to incentivize users to interact with the platform. Given the success of the STIP program, Arbitrum users are accustomed to ARB rewards for DeFi interaction, and therefore they determine the success of a protocol.

The IPOR Protocol being deployed on Arbitrum benefits the ecosystem as it presents a novel derivative for the ecosystem, can attract sophisticated actors already using the protocol on mainnet to Arbitrum, and enables new structured products which were not possible before. The IPOR Protocol can be composed with other credit products offering users sophisticated yield strategies with a single click, abstracting the complexity and giving users a better experience and wider variety of products. The integration with other credit market protocols and staking protocols can also bolster their growth through product integrations attracting new users.

Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream? Yes

SECTION 5: Data and Reporting

Is your team prepared to comply with OBL’s data requirements for the entire life of the program and three months following and then handoff to the Arbitrum DAO? Yes

Are there any special requests/considerations that should be considered? No

Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread that reference your OBL dashboard? Yes, we can built custom reporting which aligns with the OBL dashboard metrics

First Offense: *In the event that a project does not provide a bi-weekly update, they will be reminded by an involved party (council, advisor, or program manager). Upon this reminder, the project is given 72 hours to complete the requirement or their funding will be halted.

Second Offense: Discussion with an involved party (advisor, pm, council member) that will lead to understanding if funds should keep flowing or not.

Third Offense: Funding is halted permanently

Does your team agree to provide a final closeout report not later than two weeks from the ending date of your program? This report should include summaries of work completed, final cost structure, whether any funds were returned, and any lessons the grantee feels came out of this grant. Where applicable, be sure to include final estimates of acquisition costs of any users, developers, or assets onboarded to Arbitrum chains.: Yes

Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?: Yes

3 Likes

Hello @darren_ipor ,

Thank you for your application! Your advisor will be SeedLatam Gov @SEEDGov

Please join the LTIPP discord and ping your advisor in the general chat so they can create a new channel and start communicating with you.

1 Like

@darren_ipor join Arbitrum LTIPP

SeedGov thank you for the valuable feedback and support!

@cliffton.eth @raam we are ready to submit this proposal in its final form.

Hey there I’ve amended the title post to reflect that this proposal is FINAL. All the best!