Introduction

Implementing leverage in crypto is not easy. Many current platforms use middle-term solutions or large off-chain components. Crypto leverage trading therefore lacks the composability and permissionless nature of other DeFi products.

Infinity Pools is an upcoming leverage trading DEX that offers unlimited leverage on any asset pair, with no liquidations, no oracles, and no counterparty risk. These are bold claims that would surely make it a noteworthy addition to the decentralized leverage trading space. Let’s take a look at how Infinity Pools works and how it offers these impressive features.

Current On-Chain Leverage Experience

Leveraged trading typically works by allowing a trader to borrow a multiple of their cash collateral to trade with. This exposes the protocol to trader downside. Price oracles trigger liquidations that unwind losing trades before the protocol incurs bad debt. These measures introduce extra costs to users and do not always hold up in extreme scenarios.

Guaranteeing trader upside is a difficult task as well. Without access to the robust credit markets of legacy finance, protocols have to be creative to settle the long tail of leverage instruments. For options, this is straightforward. Options protocols collateralize the contract with the underlying asset up front. This creates other problems with scalability and LP profitability, but the leverage mechanism itself is quite simple.

Synthetic leverage platforms such as Synthetix, GMX, and Gains Network guarantee the long tail by operating under the assumption that the business as a whole is a going concern. Synthetix uses an overcollateralized debt pool as a temporary counterparty, while Gains Network uses a series of restrictions to create a house edge. So long as the business as a whole remains solvent, individual trades are not an issue. Protocol sustainability is subsidized by all platform stakeholders. This forfeits the composability that makes options such a powerful tool.

dYdX creates a CEX-like experience with its funding mechanism, use of an external spot price to index against perp contract pric