InfiniFi Launches DeFi Protocol with $33M TVL, Offers Transparent Fractional Reserve Banking

InfiniFi, a new decentralized finance (DeFi) protocol on Ethereum, has introduced a system that replicates the traditional fractional reserve banking model on the blockchain. This innovative approach allows users to deposit stablecoins in exchange for iUSD receipt stablecoins, which can then be staked for different yield options. For lower risk, users can stake iUSD for siUSD, which is liquid. For higher risk, users can lock up iUSD for liUSD, which is illiquid.

InfiniFi deploys the liUSD liquid tranche capital into lower risk return money markets like Aave or Fluid, while optionally deploying the siUSD illiquid tranche into higher risk return strategies. The exact ratio of these deployments is informed by the preferences of depositors and the yield options they select. This model allows InfiniFi to distribute amplified yields for both groups of depositors, providing a positive-sum outcome.

One of the key innovations of InfiniFi is its transparency. The entire stack of the protocol is on the blockchain, allowing users to easily verify the reserve composition and asset-liability mismatch. Users can look up USDC deposits and iUSD tokens minted against it, as well as examine a breakdown of the protocol’s yield strategies and liquidity buffers. This transparency ensures that users do not have to rely on quarterly call reports and can be confident that their funds are being managed responsibly.

In the event of a hack or "bank run," InfiniFi has an explicitly coded loss waterfall that determines who gets paid in order. The highest-yield and locked liUSD token holders are first in the firing line, absorbing losses first. SiUSD stakers (lower yield, no lock) are hit only after locked users are wiped, and plain iUSD holders come last. This structured approach provides users with some respite, knowing that they won't have to wait for an extended period to recover their funds.

InfiniFi has attracted significant attention, with $33 million in total value locked (TVL) and an ongoing six-month points program launched at the start of June. This program aims to incentivize users to participate in the protocol and benefit from its yield options. The transparency and structured approach of InfiniFi make it a promising addition to the DeFi landscape, offering users a new way to engage with fractional reserve banking on the blockchain.