Hakka Finance launches iGain interest rate swap protocol: hedging borrowing rates to achieve fixed lending and borrowing rates in DeFi

Taiwanese blockchain startup indicator Hakka Finance today released its latest product: Interest Rate Synth IRS, tentatively translated as "Interest Rate Swap," allowing users to use the "cumulative interest rate" of lending platforms as a benchmark to achieve "fixed interest rate returns" in DeFi.

Hakka Finance is a decentralized autonomous organization (DAO) specializing in developing DeFi financial tools. The organization announced its latest product on the 17th: iGain Interest Rate Synth iGain Interest Rate Swap Protocol, hereinafter referred to as IRS, allowing users to hedge against interest rate fluctuations in lending platforms to achieve "fixed lending rates" in DeFi.

What is the iGain Interest Rate Swap Protocol?

According to Hakka Finance's official Medium, IRS is an interest rate derivative financial product and the second product in the iGain universe. The first product is a derivative financial product hedging the temporary loss of AMM LP. IRS uses the interest rate changes over a period on a lending platform as the underlying, allowing borrowers and depositors to hedge against future interest rate changes by purchasing Long/Short to achieve fixed-rate borrowing and lending.

IRS consists of Long and Short tokens, representing long and short interest rates, respectively.

The price of the Long index is "Realized borrowing interest rate x leverage ratio," while the Short is 1 - Long. For example, if an iGain period expires in one year with a borrowing interest rate of 6% at that time, the settlement price of a 10x leverage Long would be "0.06 x 10 = 0.6," and the settlement price of Short would be 1 - 0.6 = 0.4.

In short, the Long/Short indices are complementary.

By holding Long/Short tokens to establish positions opposite to "interest rate change profit and loss," fixed-rate effects can be achieved.

For example, Bob and Alice are depositors and borrowers, respectively. Bob can hedge future interest by shorting rates (buying short tokens) to lock in future interest, where the profits from the short position can offset the losses from falling rates. Alice, as a borrower, can purchase Long to go long on future interest rates to lock in borrowing costs, where the profits from the long position can offset the increased borrowing costs due to rising rates.

To enhance liquidity, liquidity providers can increase funds by purchasing LP tokens to earn transaction fees and other rewards.

CEO: iGain can be used for any financial concept, fixed rates are just one of them

As traditional finance explores DeFi, fixed rates are becoming increasingly important.

Lucien Lee, CEO of Hakka Finance, explains that in traditional finance, 90% of the debt market is dominated by fixed-rate loans. This is because fixed-rate loans have lower risks, and stable and predictable rates make borrowers and lenders more willing to adopt more complex financial products.

However, in the DeFi space, this ratio is completely reversed.

According to Hakka Finance research indicates that the current DeFi floating rate protocol market value (approximately $20.5 billion) is far greater than the fixed rate protocol market value (approximately $7.67 billion), with floating rate protocol market value accounting for over 95%. Therefore, for DeFi to go further and accommodate more traditional financial institutions, the development of fixed-rate products becomes crucial.

With iGain IRS, crypto users will be able to offset their positions in floating rates on these DeFi platforms by purchasing long and short tokens. The platform not only ends uncertainty and sets cost limits for borrowers but also ensures lenders a guaranteed income level in case of falling rates.

Lucien Lee stated, "Interest Rate Swaps (IRS) can occupy a large proportion in traditional finance due to the high capital efficiency brought by 'interest rate differentials,' which are favored by enterprises and financial institutions. By drawing on the design of interest rate swaps, we further transform the interest rate swaps in traditional finance to create iGain – Interest Rate Synth, a derivative product trading market suitable for blockchain in the traditional financial world."

Furthermore, Lucien Lee emphasized the flexibility of designing financial products with iGain.

This is because iGain is essentially a DeFi product that marketizes various financial targets through derivatives, making it a tool to marketize financial concepts that are derivative and hard to capture.

As Hakka Finance is a decentralized autonomous organization (DAO), the community can also submit new ideas for marketizing financial concepts with iGain, aligning with the concept of creating products needed by the community.

"iGain can be used for any financial concept. That's why we built iGain for interest rates. However, anyone in the HAKKA community can submit new ideas for any iGain financial product. If the community votes in support, those who submitted the proposals will be rewarded."