How Does infiniFi Work?
infiniFi is a yield protocol on Ethereum that replicates fractional reserve banking on-chain, deploying deposits across Aave, Ethena, and Pendle to generate yield. Users can choose between liquid staking (siUSD) or locked higher-yield positions (liUSD). With $176M TVL and transparent on-chain reserves, it offers yields above typical money markets. Its C+ grade reflects the inherent risk of fractional reserve leverage and concentrated strategy dependency.
TVL
$82M
Sector
Yield
Risk Grade
B-
Value Grade
D
Core Mechanisms
6.1.1
NovelOn-chain fractional reserve system allocating ~$1.60 per $1 deposited across yield strategies
Explicit fractional reserve banking on-chain with transparent asset-liability mismatch is a novel approach. Traditional DeFi protocols are fully collateralized.
2.2.4
NovelTranche-based yield distribution with loss waterfall: iUSD (base) -> siUSD (staked, liquid) -> liUSD (locked, illiquid)
Structured credit-like tranching with explicit loss waterfall in DeFi is novel. liUSD absorbs losses first, siUSD second, iUSD last.
6.2.2
Multi-strategy yield deployment across Aave, Fluid, Ethena, and Pendle
Standard yield aggregation across multiple protocols. The underlying strategies are well-understood individually.
3.4.2
iUSD receipt stablecoin representing deposit claim, stakeable for siUSD or lockable for liUSD
Receipt token pattern is standard. The staking/locking variants create different risk-return profiles.
5.4.1
Renounced contract ownership with hardcoded parameters
Immutable contracts reduce admin risk but prevent emergency intervention.
Yield > Tranched Risk
NovelInfiniFi offers two yield tiers: siUSD (liquid, lower yield, last-loss) and liUSD (locked, higher yield, first-loss) with explicit loss waterfall
Replicates banking deposit tiers on-chain with transparent, coded loss hierarchy
How the Pieces Interact
Fractional reserve amplifies yield strategy losses. The loss waterfall means liUSD holders absorb first losses, but if losses exceed the liUSD tranche, siUSD and eventually iUSD holders face losses too. A 40%+ loss in deployed strategies could cascade through all tranches.
Heavy allocation to Ethena USDe creates concentrated risk. If USDe depegs or Ethena basis trading yields turn negative, infiniFi faces simultaneous yield reduction and potential capital loss on its largest strategy allocation.
Fractional reserve means not all deposits are liquid simultaneously. A bank run scenario where many iUSD holders redeem at once could exhaust liquid reserves, forcing delayed redemptions or withdrawals from illiquid positions at a loss.
Immutable contracts cannot be emergency-paused if an underlying strategy is exploited. While this eliminates admin key risk, it prevents rapid response to crises in Aave, Ethena, or other integrated protocols.
If multiple strategies fail simultaneously, liUSD holders absorb total loss before siUSD is protected; but cascade could exceed liUSD buffer and hit siUSD holders
What Could Go Wrong
- infiniFi operates as on-chain fractional reserve banking, allocating ~$1.60 to yield strategies per $1 deposited. This leverage amplifies returns but also losses. If underlying strategies (Aave, Ethena, Pendle) experience simultaneous losses, the reserve may be insufficient to honor all iUSD redemptions at par.
- The loss waterfall mechanism explicitly prioritizes which depositors absorb losses first: locked liUSD holders absorb first, then siUSD stakers, then plain iUSD holders. While transparent, this means higher-yield products carry genuine loss-of-principal risk, not just yield reduction.
- Heavy reliance on Ethena's USDe for yield generation creates concentrated counterparty risk. If Ethena experiences a depeg or yield compression, infiniFi's returns and potentially its reserve adequacy would be directly impacted.
Ethena USDe Depeg Cascading Through Fractional Reserve
ModerateTrigger: Ethena USDe depegs by >5% or experiences sustained negative funding rates, causing losses in infiniFi's largest yield strategy allocation
- 1.Ethena USDe depegs by 5-10% due to sustained negative funding rates or a counterparty issue — infiniFi's Ethena-allocated capital (a significant portion of the ~$1.60 per $1 deployed) incurs immediate mark-to-market losses
- 2.Loss waterfall activates: liUSD (locked, illiquid) tranche absorbs first losses — liUSD holders face 10-30% capital loss, unable to exit due to lock-up period
- 3.If losses exceed liUSD tranche capacity, siUSD (staked, liquid) tranche begins absorbing losses — siUSD holders rush to unstake and redeem iUSD, creating liquidity pressure
- 4.Mass iUSD redemptions strain liquid reserves, as fractional reserve means not all iUSD is backed by liquid assets — Redemption delays or partial redemptions as protocol unwinds illiquid positions at losses
- 5.iUSD trades below $1 on secondary markets as confidence in full redemption erodes — Remaining depositors face losses; protocol TVL drops 50-80%
Risk Profile at a Glance
Overall: B- (35/100)
Lower score = safer