LD Capital: Inverse Finance, a resurrection from the ashes?

1. Project Introduction

Inverse Finance is an Ethereum-based CDP lending product that allows users to borrow stablecoin DOLA by collateralizing cryptocurrencies. The project was founded in 2020 and gained market attention when recommended by YFI founder AC. At that time, the project offered a no-loss investment around stablecoin Dai, where users deposited Dai into protocol vaults and received deposit certificates inDai at a 1:1 ratio. The vaults then invested the Dai into yield aggregators such as Yearn, earning rewards in ETH, YFI, and other tokens.

Unfortunately, the project suffered two consecutive malicious attacks in 2022, resulting in the suspension of its products. In October 2022, the project transitioned to the fixed-rate lending market.

2. Team

Currently, the publicly available member profiles are for the project's founder ^。

Nour Haridy, from Egypt, has been working as a Web 3 development engineer since 2018. Haridy has previously served as a developer in the Ethereum field for several years, primarily designing gas-free Dai smart wallets such as Metacash and Mosendo, as mentioned in an interview with Cointelegraph. Nour is currently working full-time at Inverse Finance and has a Twitter following of 2.8k, with a small-scale social influence.

Image: Founder's Twitter

According to Crunchbase, Inverse acquired Tonic Finance on April 30, 2021 for $1.6 million.

Image: Inverse Finance Public Profile

3. Products

Inverse's main products currently are the fixed-rate lending market FiRM and the stablecoin DOLA.

1. DOLA

DOLA is a decentralized stablecoin issued by Inverse Finance, pegged to the US Dollar at a 1:1 ratio. The supply and burning of DOLA are managed by the Feds smart contract.

Note: Due to a manipulation attack on the Frontier (frontend) oracle, there are currently some bad debts with DOLA.

These bad debts are actively being paid off through DAO, and the front-end product is currently deprecated.

The Fed smart contract is controlled by Inverse DAO and is divided into three different types, but all can mint DOLA and directly supply it to the liquidity pool or lending market. It can also be extracted and destroyed, thereby affecting the price stability of DOLA.

Image: Feds Type

Cross Lending Feds: Frontier & Fuse, the frontend has now been deprecated.

Isolation Mode Lending Feds: FiRM lending market, FiRM market has a global DOLA limit and each asset market will also have daily lending limits. We will provide more details on FiRM below.

AMM Feds: Providing liquidity to protocols like Velo, Convex, Aura, etc.

2. FiRM

FiRM is...

In February 2021, Inverse partnered with Anchor to issue the stablecoin DOLA. However, due to the collapse of the Terra ecosystem and two attacks on Inverse, the existing frontend of the product has been disabled. In October 2022, Inverse launched the fixed-rate lending product FiRM.

FiRM is an over-collateralized lending product, and its principle is the same as other lending products. The reason it is called fixed-rate lending is that FiRM is based on DBR (DOLA Borrowing Right) as the fixed cost of lending. In order to borrow DOLA in FiRM, users must hold DBR, where one DBR represents the cost of borrowing one DOLA for one year. By inputting the amount of DOLA to borrow and the borrowing period, users can calculate the amount of DBR that needs to be spent per day. Therefore, users can estimate the amount of DBR required and the lending cost before taking out the loan. If the loan period needs to be extended, users can add DBR to their wallet at any time.

DBR's initial distribution method was airdrop: ① Investors who still hold INV in the front-end application before October 30, 2022 will receive 2,000 DBR each; ② Completing the lottery activity can receive up to 1,000 DBR.

DBR can be circulated in the secondary market, so the increase or decrease in demand for DBR by borrowers may cause the price of DBR to rise or fall. High demand will drive up the price of DBR, which is a good thing for investors, but it will increase the borrowing cost for borrowers, thereby reducing the attractiveness of FiRM loans and not being friendly to the development of the Inverse protocol itself. Therefore, Inverse introduces DBR Streaming, which is to issue DBR rewards to INV stakers. By staking INV in FiRM, users can receive DBR token rewards. The community can influence the price and user borrowing costs of DBR by regulating the emission of DBR.

IV. Fundamental Data

1. TVL

Image: TVL Trend

Currently, only approximately 2,363 million CRV and 673 million cvxCRV, with a total value of about 24 million US dollars, have been deposited by the founder of Curve. They have borrowed approximately 7.98 million DOLA stablecoins. His personal position ($16.08 million) accounts for 31% of Inverse's TVL. The development of the Inverse protocol is deeply influenced by Curve.

Image: Founder Account of Curve

FiRM has been operating in "protected mode" for some time, so there are daily borrowing limits and supply limits for each asset type in the lending market. The currently supported asset types include CRV, cvxCRV, gOHM, WETH, and stETH. Among them, CRV and cvxCRV are the largest asset types. According to the proposal in May 2023, the daily borrowing limit for the CRV market is 1 million DOLA with a supply limit of 10 million DOLA, and the daily borrowing limit for the cvxCRV market is 500,000 DOLA with a supply limit of 6 million DOLA. The combined borrowing scale of the two is 10.16 million, reaching 63.5% of the borrowing limit. Due to the rapid increase in the supply of these two assets, liquidity supply to their markets has been paused two weeks ago for security reasons.

2. DOLA

According to official website data, the current total supply of DOLA is 6,180 million coins, of which 3,772 million coins are supplied on Ethereum, accounting for 61.04%, followed by Optimism, accounting for 30.44%. The main places of adoption are DEX Velo on Optimism and their own protocol product FiRM. The DOLA team attaches great importance to the adoption of Layer-2.

Image: DOLA issuance scale

Image: DOLA Distribution

According to defillama.com data, DOLA ranks 19th in the overall stablecoin market capitalization, reaching only 1.4% of the market capitalization of leading decentralized stablecoin DAI (4.337 billion).

Image: Stablecoin Market Cap Rankings

After experiencing the "hack attack" incident, DOLA's token price has been relatively stable since October 2022. There have been two significant price fluctuations recently. One was on March 8 due to the impact of the USDC anchor untethering event, and the other on April 9 for reasons currently unknown.

Image: DOLA Price Trend

5. Economic Model

The Inverse protocol has three types of tokens: DOLA, INV, and DBR. DOLA is a stablecoin product, which has been explained in detail earlier, and this section will focus on describing INV and DBR.

1. INV

INV is the governance token of Inverse, and currently, its only use cases are staking and governance.

The complete economic model of INV is not known at the moment. The token supply is determined through governance proposal voting. The previous practice was to approve a minting proposal every quarter, based on liquidity strategies to determine token emissions. On June 30th, a new

The proposal has been confirmed that 60,000 INV will be minted in the second half of 2023 to continue being operated by the DAO in the next 3 to 6 months.

The current token supply is 305,000 INV with a staking rate of 56.4%. 98,000 INV have been staked through FiRM, and there are 74,000 INV remaining from the deprecated Inverse front-end in June 2022 due to a malicious attack incident.

Image: INV Token Supply

2. DBR

DBR has no supply cap and is controlled by Inverse DAO. In the past year, 13 million tokens were issued, 12.72 million tokens were burned, and around 280,000 tokens are in circulation. According to Coingecko data, the current total supply of DBR is 4.646 million tokens.

Image: DBR Annual Supply and Burn

Since March this year, the amount of DBR burned has increased significantly. In June, due to the active CRV and cvxCRV asset markets, the amount burned was more than triple that of May. The annual burn rate also exceeded the annual issuance, and DBR entered deflation.

Due to the increased activity of borrowing and lending in the FiRM market and to meet the growing demand for DOLA loans, the community proposed to increase the issuance of DBR from 10 million per year to 20 million per year.

Image: DBR Monthly Supply and Burn

From the consumption of DBR, it can be seen that the recent main demand is in the CRV market, followed by OHM. 0x7a16 represents the position of the Curve founder.

Image: DBR Consumption

3. INV and DBR

DBR is an essential consumable in the Inverse protocol with real use cases. Its demand for DOLA lending directly affects the price of DBR. An increase in DBR price implies an increase in borrowing costs. In order to ensure the healthy development of the product and suppress borrowing costs, Inverse DAO will increase the emission of DBR, increase the supply of DBR, and thereby reduce the price of DBR.

DBR is mainly produced by INV stakers. The demand for DBR incentivizes INV token holders to stake and empower the INV token. The two are mutually beneficial.

Sixth, Assets and Liabilities

1. Assets

The total value of assets held by Treasury is 4.57 million US dollars, including 4.43 million US dollars held in Treasury contracts and 0.1378 million US dollars in Frontier reserves. The majority of assets in Treasury contracts are in DOLA, with a value of 2.25 million US dollars, followed by DBR assets with a value of 1.53 million US dollars.

Image: Treasury Asset Distribution

2. Liabilities

Inverse Finance on April 2, 2022, suffered an attack due to a vulnerability and lost 4,300 ETH, equivalent to approximately $14.964 million. On June 16, 2022, it suffered another flash loan attack, resulting in a loss of approximately $1.2 million.

According to information disclosed by the official on Discord on June 28, the remaining bad debt of DOLA is approximately $9.42 million. Since June 2022, the team has repaid $1.372 million, including from DWF and other entities via OTC sales.

Received funds during the sale.

The team is still selling INV and DBR assets to repay bad debts. The latest information:

1. New proposal: Mint 26 million DBR tokens, and sell them to whitelist buyers at a 15% discount based on the 30-day DBR TWAP price provided on Coingecko. The minimum transaction amount to qualify for the discount is $100,000. The proposal will be officially executed on July 3rd.

2. The founder announced on Twitter that they have purchased $250,000 worth of INV at the 30-day TWAP price from the Treasury. This funds will be used to repay bad debts, and other buyers are welcome to make purchases. The OTC period will last until July 7th.

Image: Founder Nour's Twitter information

Summary: The main issue currently faced by Inverse is the significant amount of outstanding bad debts from the past. Currently, protocol revenues and token sales are used entirely to repay these bad debts, which affects the expansion of the product. Due to Aave's reduction in exposure to CRV, the founder of Curve has transferred some lending activities from Aave to Inverse, which has attracted market attention to the Inverse protocol. Although the liquidity supply for CRV assets has reached its limit, the TVL (Total Value Locked) of Inverse is still steadily increasing, indicating that the Inverse protocol is gradually gaining market recognition, which is a positive development signal.