Transcript - Conversations with the Coop - Simone Rigolon - Impermax Finance
This installment of “Conversations with the Coop” with Impermax Finance founder Simone Rigolon occurred on July 1, 2021. The following is a transcription of the live conversation between the host, Crypto Texan, and Simone Rigolon. To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord.
Crypto Texan: Hello everyone! Welcome to Conversations with the Coop. I'm your host, Crypto Texan and we have with us here today, Simone Rigolon, who is the founder of Impermax. Simone, how are you doing today?
Simone Rigolon: I'm very good, thanks and thank you very much for the introduction. Yes, I'm very excited to be here today.
Crypto Texan: We're excited too. So, I guess to start off, can you give us just some background on yourself and how you got into crypto and DeFi?
Simone Rigolon: Ok, sure. So, I'm Simone. I'm from Italy. I'm 23 years old and I got into crypto four years ago. Actually, I've been studying computer programming since I was around 12 years old. And as soon as I discovered the concept of blockchain and cryptocurrency, I immediately fell in love with it. I'm really a blockchain enthusiast and I love the concept of the decentralization and ownership that the blockchain gives to the users. I got into DeFi around two years ago and I started experimenting with building some applications with solidity. I was already a web developer when I got into crypto so it was quite easy to get started with development and yeah, here I am.
Crypto Texan: Well, that's great. So now that we have some background on you, and the fact that you've been programming since you were 12, which is incredible. Can you share a little bit about Impermax for the audience? What is Impermax Finance?
Simone Rigolon: Yes, sure, on a very low-level Impermax is a lending protocol that allows users to use LP tokens as collateral. So you can think about something very similar to AAVE or Compound, but Impermax is designed to work in the best way and have the best efficiency with LP tokens. So, on a higher level for users, Impermax allows users to leverage LP tokens and to provide the liquidity to automated market makers without exposure to impermanent loss, and these are just some examples of the features that Impermax offers to its users.
Crypto Texan: Okay, so you mentioned no exposure to impermanent loss, how is that achieved through Impermax?
Simone Rigolon: In order to explain that we have to take a step backward.
Crypto Texan: Okay
Simone Rigolon: Impermax is a lending protocol where LP token owners can deposit their LP token as collateral on Impermax in order to borrow capital, which they can then use to provide more liquidity to automated market makers. We call this “LP token leverage” because you take your LP position, and you multiply your exposure to the LP token and so you're able to earn more from a trading fees.
But we also have the lending side, and we call this “indirect liquidity providing”. Lenders can supply their token on Impermax, and then they receive interest. This is very similar to what other lending protocols offer and the nice thing about lending in this way, is that you are able to provide liquidity indirectly to the automated market makers. So, you can earn a percentage of the trading fees with no exposure to impermanent loss.
Crypto Texan: Okay, so would you say that this gives users an opportunity to provide an individual token to an AMM, as opposed to providing a pair?
Simone Rigolon: Exactly, because indirect liquidity providing also means that you don't need to provide both tokens. You can lend/supply just a single token.
Crypto Texan: Okay, let's say we're using DeFi Pulse Index. I supply DPI to the protocol, borrowers of the DPI token that I've supplied are using that to go into automated market makers, correct?
Simone Rigolon: Yes, exactly.
Crypto Texan: What prompted you to found Impermax? What need in the market are you trying to solve with Impermax Finance?
Simone Rigolon: So, I started working on Impermax around one year ago and the main problem that I've seen with automated market makers is that they are very new, and they are very inefficient. There are a lot of things that we can do still today in order to make automated market makers a lot more efficient with the liquidity they have. This year a good example was Uniswap V3 - that really was built around this concept of capital efficiency. But the reality is that there are still a lot of things that could be done in order to make liquidity providing a lot more efficient and so Impermax was born for this reason. Basically - in order to give liquidity providers more instruments. We give the opportunity to use LP tokens as collateral in order to leverage the liquidity providing position, or to provide liquidity indirectly, to the automated market makers. But these are just some of the things that we're working on basically.
Crypto Texan: So, if I take my DPI/ETH LP token, and I deposit it into the protocol, I have a few options: (1) I can borrow DPI against it, (2) I can borrow ETH against it, or (3) I can borrow the pairing and increase my leverage position in the automated market maker. Is that correct?
Simone Rigolon: Yes, exactly. And the leverage is increased by borrowing both ETH and DPI by providing them to the automated market maker in order to obtain more LP tokens that you can then use as collateral.
Crypto Texan: So on Impermax, when I borrow both DPI and ETH to leverage my LP token position, and assuming I'm using Uniswap V2, is Impermax taking those borrowed tokens and putting them into the liquidity pool on Uniswap?
Simone Rigolon: Yes, Impermax is doing that for you in the background and what happens is that you'll end up owning more LP tokens, and so you earn more trading fees basically.
Crypto Texan: When users are leveraging their LP tokens, there is still risk of liquidation, but it's through a range. For example, I could leverage my DPI/ETH LP token at about 4x leverage but then I could get liquidated if the DPI/ETH ratio went below, let's say, 0.05, or went above 0.30. Why is there a range for liquidation of the pairing going below or above those number?
Simone Rigolon: Yes, there is a very specific reason for that and it is that LP token leverage is very different from trading leverage. With LP token leverage, you're not directly exposed to the market movement, because your debt is basically covered by your LP tokens. But you are still exposed to impermanent loss and as you know, with impermanent loss, you lose money when the price goes up but also when the price goes down. This is why there is a range. When you use leverage, the impermanent loss on your LP token increases. So, if the price go up by a certain amount or it goes down by a certain amount, you'll get liquidated because of impermanent loss.
Crypto Texan: You're currently allowing users to deposit Uniswap V2 tokens? That's all that I'm aware of. What other protocols are you are you using with Impermax?
Simone Rigolon: Currently, the only other protocol that we support is QuickSwap, which is a fork of Uniswap V2. Actually, we are working towards supporting a lot more of the Uniswap V2 forks, and there are a lot of them. For instance, there is Pancakeswap or SushiSwap and a bunch of other AMMs that we are looking for supporting in the short term.
Crypto Texan: You mentioned Pancakeswap there. Does that mean that there are plans to go cross chain? What are the plans to deploy on other L1s like Binance Smart Chain? Are there any plans for Polkadot when that starts, or Avalanche also?
Simone Rigolon: Yes, for sure. Impermax wants to be a cross-chain project and we have recently launched on Polygon. Polygon, we could say, it is a side chain to Ethereum. But it's not very different to launch on Polygon or launch on Binance Smart Chain from a technical point of view. So, supporting PancakeSwap would be very similar to what we're doing now with QuickSwap.
Crypto Texan: Yes, that's kind of been my view on Polygon is that it really just feels like a separate L1 that's similar to Polkadot, but it's just “on top” of Ethereum, or a side chain, as you said.
Simone Rigolon: Yes, it seems to be a sort of hybrid. It takes security from Ethereum. But it's also not exactly a layer two. So, it's a sort of hybrid.
Crypto Texan: So, I'm guessing your strategy is that you're going to try to onboard the Uniswap forks first, because the code is so similar to what you're doing with V2 anyway?
Simone Rigolon: Yes, exactly. While we are working on new features, like working on Uniswap V3, at the same time we are supporting these new AMMs because it’s very easy to onboard them.
Crypto Texan: Okay, so, back to Uniswap. Are there any plans to utilize the Uniswap V3 LP NFT tokens?
Simone Rigolon: For sure, and that's the most complicated thing that we're working on right now because the fact about Uniswap V3 is that it is a completely brand new AMM with new features, but also a new concept with LP NFTs. We are researching ways to use LP NFTs as collateral. We are basically building our new protocol from zero, so supporting Uniswap V3 will take a bit more time than doing everything else but we're certainly looking forward to it.
Crypto Texan: What would you say is one of the more complicated challenges using the V3 with Uniswap?
Simone Rigolon: I wouldn't say there are particular challenges. Maybe the biggest challenge is researching a new collateralization model for LP NFTs. But apart from this, the biggest challenge is make everything safe and secure and this is what will take the most time. The process of testing, doing bug bounties, auditing the code - this is what will take the most time.
Crypto Texan: So, with concentrated liquidity on Uniswap V3 and then the ability to leverage LP tokens - Looking into the future, how do you see the concept of liquidity provision evolving for the average DeFi user, let's just say five years out?
Simone Rigolon: What I see is that liquidity providing will become a lot more efficient, but also a lot more complicated for the users. Yes, and we are already seeing this trend with Uniswap V3. Uniswap V3 is certainly a lot more efficient than Uniswap V2, but it also gives a lot more options to the liquidity providers and, in turn, it is harder and more complicated to use for the end users. I think there will be more strategies and there will be a lot more knowledge about liquidity providing. So, it will be also be harder for the average DeFi users to be profitable.
There will be a lot of liquidity providers that will do that as a job full time. They will have bots, they will have reserves, and they will have resources. I think there will be more services like Impermax that will allow the average DeFi users to indirectly provide the liquidity so they can earn a safe return on their investment without all the complexity of liquidity provision. This is the main thing that I find interesting about indirect liquidity providing, is that it’s very simple. There are no major risks of impermanent loss and it will be perfect for the average of the DeFi users that just want a “set and forget” experience.
Crypto Texan: Do you feel like over the long term, with new protocols coming on that can manage these liquidity provision strategies for you, it'll be easier for the average DeFi user? Is that what you're feeling?
Simone Rigolon: That’s not exactly what I'm saying. I'm saying that it will be easier for users to just lend their tokens to other liquidity providers who will then implement more complex strategies in order to provide liquidity in an efficient way.
Crypto Texan: Okay, I misunderstood you. So, basically, what your protocol does - Where I could lend 10 DPI and a liquidity provider and that alleviates my risk of impermanent loss as a supplier.
Simone Rigolon: Yes, yes, exactly.
Crypto Texan: If I leverage my LP position, how is interest paid to the lenders?
Simone Rigolon: When you leverage, your loan will accrue interest and your debt will grow with time and that's the way that interest is paid.
Crypto Texan: Currently on Impermax, you're incentivizing borrowing on the protocol by providing IMX rewards. What was the strategy behind incentivizing borrowing, as opposed to just incentivizing supplying?
Simone Rigolon: The concept is that we use an innovative interest rate model that adjusts itself based on the supply and demand. When there is a lot of demand by borrowers, the interest rates in the protocol increases in an automatic way. Since there is a lot of demand for borrowing, because we are incentivizing it, the interest rate for lenders will go up. At the end, all the incentives balance themselves out because thanks to the farming program, lenders will earn higher interest rate. We are indirectly incentivizing those for lending.
Crypto Texan: On the subject of the IMX token, you launched the token in late April and it was in the middle of the bull market. The price shot up to almost $2 and now it's down to about 13 cents. What was it like launching a token and a protocol in the middle of the bull market? Was that pretty crazy? Was this by design?
Simone Rigolon: Oh, yeah, it was pretty crazy. But no, it wasn't by design. It was actually a casualty. And if I have to be honest, it has also been quite unfortunate because the market started tanking about one week after we launched the token. This isn't an ideal scenario for a new project that is trying to obtain more users and gain more exposure to the market. I think the price of the tokens tanked also for this reason, because we launched near the end of the bull market. At the end of the day, it's not a major issue, because we are more focused on the long-term and we don't care too much about the movement of the price of the token in the very short-term. I'm still very confident about the future of the project.
Crypto Texan: I feel like you see that a lot with people who have been in this space for a while. The bull markets are fun, and it's fun to see a lot of price action. But when the price goes down, I think most people that are still here, they care, sure, but they understand. The bear market is the time to put your head back down and get back to working. You talked about the future of the protocol and since we're on that topic, what's coming up on the roadmap that you're excited about? Any new features outside of Uniswap V3?
Simone Rigolon: If we want to talk about the very short term, we just announced yesterday that we've started token buy backs. And we will begin the staking program for IMX this month, so I'm very excited about that. As I just said, I don't care too much about the token price in the short-term, but the staking program will really help the protocol grow, because it will create more utility for the token and if the price goes up, we can give more farming rewards to our users and this will make it much easier for us to increase our user base.
Crypto Texan: Okay, so it's more of a treasury management strategy. This token buyback?
Simone Rigolon: Yes, we are buying back IMX, but also with the IMX that we are buying back, we will distribute to current IMX holders through our staking program.
Crypto Texan: Do you have a timeframe for the staking program?
Simone Rigolon: We don't have anything official yet, but I would say that it should be ready this month.
Crypto Texan: I feel like in the traditional finance market, when you hear about a company repurchasing their stock or doing a stock buyback, sometimes it can be an indicator that the company is bullish on their own stock price, or they feel like the stock price is undervalued. So, it typically seems like a pretty bullish indicator for a protocol. What other utility does the IMX token provide? Is there governance that the token holder can participate in?
Simone Rigolon: Governance will actually be the main utility, but it is not ready yet. We are planning on launching governance in the next few months and the reason why we haven't launched the governance with the token launch is because IMX is a very new protocol right now. We are still experimenting with the protocol settings and it's much easier to make the protocol grow without governance in place, at least at this initial stage. But moving forward all the keys and all the protocol permission will be handed over to governance.
Crypto Texan: Okay, I want to go back and touch on the treasury again, just because I'm a little curious. Is there any talk within Impermax about diversifying the treasury outside of just the IMX token? You’ve seen DAOs and other protocols put ETH on their balance sheet, or in their treasury, I should say. With Index Coop, we're going to add Axies to our balance sheet and we’re a little bit more diverse too. Are there any treasury diversification plans that Impermax has?
Simone Rigolon: The nice thing about our treasury is the way the protocol generate profits. We charge a percentage on the interest that borrowers pay on Impermax. So, the profit is basically generated in the tokens that the user use in all the tokens that we support for lending on our platform. So, our treasury is made up of stablecoins, Ethereum, UNI, DPI, Compound - basically all the tokens that we support. Then through the buyback program, we’ll buy IMX with the profits that we have. But, on a basic level, our treasury is made up by a lot of tokens.
Crypto Texan: Okay, so you're pretty well diversified then. When you're doing these buybacks, are you purchasing them with something like Dai or USDC?
Simone Rigolon: We are using the tokens that we have in the treasury. It was very useful to have a stablecoins in this period, because since the market went down a lot last month, our treasury didn't suffer too much because we had a lot of stablecoins in it. Now in the buyback program, we are using mainly stablecoins in order to buy back Impermax from the market, since IMX went down a lot against the US dollar.
Crypto Texan: That ended up putting y’all pretty good position, having those stablecoins on your balance sheet. That's very interesting. With being a new protocol, how big is your team of developers? Or how big is your team in general?
Simone Rigolon: We are six people in total, and two are developers. In being a new protocol right now, our team is of the right size because we can be very flexible, we can communicate faster and work on new features and improvements in a very flexible way. I have to say that moving forward, we will certainly need to expand the team, especially the number of developers, but for the moment is going really well the way it is.
Crypto Texan: The reason I asked the question about the size of your team, is because prior to this I did some research, and I was in the Impermax Discord and I was on the Impermax subreddit. It looks like you are the one in there answering most of the questions. So my next question is, how do you have time to do the work you do at Impermax AND answer all of these questions in the Discord and the subreddit?
Simone Rigolon: I usually don't do that because we have a few community managers, so they are able to answer most of the questions of the users. But whenever we launch a new product, for instance, we just launched on protocol last week and there were a lot of very complicated technical question, or maybe feedback about the application, that community managers weren't able to answer. So, I basically went through the Discord and answered those questions for everyone. Now, in the future, there is already the answer out there and our community manager can post the answer themselves and everything will become a lot more efficient.
Crypto Texan: Kind of on that same subject, what is the plan of Impermax to drive adoption for both investors and users? What kind of marketing strategies are y’all putting in place?
Simone Rigolon: In the very short term, we are working on the fundamentals of the protocol. For instance, on the IMX staking on the farming program, understanding the best strategies on which pairs to add to the protocol in order to generate the most profit. Once we have a good basis, we will start spending more cash on actual marketing, sponsorships, and stuff like that. In the meanwhile, we also have a percentage of the token that is allocated to the community. So, we will create more bounty programs and stuff like that for our community.
Crypto Texan: Are there any partnerships that are in the works right now or anything you can speak to at the moment?
Simone Rigolon: Nothing in particular that I can speak about right now, but, yes, there are interesting things coming out.
Crypto Texan: I think that's pretty much all the questions that I have for you, Simone, is there anything else that you specifically want to touch on related to your project?
Simone Rigolon: We’ve touched on a bit of everything. I think at this point, I can answer questions. If there is anything in particular that you want to know, or somebody want to ask?
Crypto Texan: I'll ask one more question and do you see any way that the Index Coop could partner with Impermax? Or how do you see a relationship between the two, potentially?
Simone Rigolon: Index Coop is currently giving an incentive to provide liquidity. I am aware of the DPI/ETH pair and I think there is also another pair that you're giving incentives to. The way we could support Index Coop on Impermax is to take the DPI/ETH pair and then take the LP tokens on your staking pool so that users will be able to earn INDEX staking reward, and also so have a greater APY.
Crypto Texan: One more question that I'm seeing in the chat here is related to a UI update for Polygon. I haven't been on the Impermax Polygon interface, but are there any plans for a user interface update on Polygon?
Simone Rigolon: We are working on a lot of UI updates right now, but not specifically on Polygon. We’ll post a UI update that will affect the user interfaces on all networks. So, yes.
Crypto Texan: I think that that's good that answers the question. One final question, and then we'll let you go. Where can people go to learn more about you and Impermax?
Simone Rigolon: I think the best resources is our blog on Medium and there we have a lot of very interesting articles that explain a lot of things about Impermax in a very simple way. So, I think that's the best place to check out if you want to read some good quality articles in order to understand better what the protocol is about. And if you really want to go into the technical details of the protocol, then you can check out our white paper that explains basically everything about the architecture and the technical details of the Impermax.
Crypto Texan: Thank you for joining us today on Conversations with the Coop, Simone. Hopefully, we can get you back on sometime in the future and good luck with Impermax. I think it's an incredible protocol and I think the ability to leverage LP tokens is pretty great. This concludes Conversations with the Coop. Thanks, everyone, have a great rest of your week.
Simone Rigolon: Thanks a lot. Bye