Basic functions of the Impermax protocol.
Impermax is designed to let users become lenders and/or borrowers. Borrowers use LP tokens as collateral and use the borrowed funds to increase their liquidity providing positions.
Lenders have reduced risk compared to a traditional liquidity provider. Lenders can supply ERC20 tokens to any lending pool and earn interest paid by borrowers.
Borrowers have increased risk and reward compared to a traditional liquidity provider. Borrowers use LP tokens as collateral for loans. Those loans are used to acquire even more LP tokens. In this way, yield farmers can multiply their yield farming positions up to 50x. The protocol bundles many steps into a single transaction to save on gas fees.
The Impermax lending market is built around two innovations. The first is its unique economic architecture, which keeps all lending pools isolated. This means that if a borrower’s position is liquidated in one pair, the other pairs will not be affected. This also enhances security since an attack on one token pair pool will not affect the other pools.
The second novel structure is the collateralization model. Instead of using a loan-to-value calculation for collateral, Impermax uses a parameter called “safety margin” to reduce the required over-collateralization and provide much higher leverage than similar current designs.