The Current DeFi Liquidity Layer
Many people compare DeFi to Legos, but in reality, the current infrastructure of DeFi more closely resembles Jenga, the tower game in which blocks are carefully removed while trying to avoid collapse. Much like Jenga, DeFi consists of many layers (or primitives) — from bridges, to dexes, to lending protocols and more. DeFi apps are able to achieve strikingly fast innovation by building atop these existing primitives, and in return, contribute themselves as a new block for subsequent builders to utilize. Although this rapid development is beneficial for innovation, the strength of the tower is only as strong as the solidness of its base (as anybody who’s played Jenga would know) — and if the base lacks stability and strength, the entire tower risks collapse.
In DeFi, the base layer for the entire Jenga tower is liquidity. Liquidity serves as the lifeblood of the system, essential for token swaps, transactions and healthy app ecosystems. However, current DeFi infrastructure grapples with a critical challenge — the instability and unreliability of its base primitives (i.e. liquidity suddenly being removed), leads to precarious liquidity conditions. Long term liquidity is not incentivized at the base layer since liquidity providers don’t have extra incentives to lock their liquidity. This is problematic because the potential for abruptly vanishing liquidity creates the constant threat of a large-scale Jenga-tower collapse that can tear down the entire DeFi ecosystem.
The Vision and Mission: Solidifying DeFi for the Next Wave of Innovation
Infusion’s vision is to empower growth and innovation in DeFi by stabilizing onchain liquidity. By fusing liquidity with time, Infusion Protocol introduces a new standard for the base liquidity layer. By first incentivizing liquidity providers to lock their liquidity for higher fees, Infusion ensures that the lifeblood of DeFi is locked, stable, and reliable for the rest of the tower to flourish. Since this “provable liquidity” is both stable and predictable, other DeFi apps — of the present and of the future — can utilize this new primitive to enhance their functionalities.
For example, a lending protocol drastically benefits from provable liquidity because the locked stability fortifies the liquidator network and ultimately expands borrowing thresholds. To incentivize provable liquidity, a lending protocol could choose to offer better borrowing rates on loans to wallets containing provable liquidity. Overall, provable liquidity catalyzes the maturation of DeFi — across lending protocols, perpetual DEXs, onchain reputation/identity and more — and transforms the building blocks from Jenga to Legos.
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