Today we launched INF v2.
INF was first launched around 4 and a half years ago. It's Sanctum’s oldest product. For nearly 2 years it was called scnSOL (’socean’ = SOL Ocean), imagined to one day be an ocean of SOL liquidity for LSTs.
Today, at just over 2.3 million SOL size, it's reached large-body-of-water status, but there's still work to be done to be classified an ocean.
Eventually, scnSOL was rebranded to "INF" (the Infinity pool). Inspired by the vision of an "infinite LST future" where many LSTs, serving many different purposes, exist and all share one large layer of liquidity (called Infinity).
When I joined Sanctum last year, I took a long hard look at our business and concluded we had a gap. After much contemplation, I realized the answer to this gap was INF.
At the time, INF was in an odd place. In my view, it kind of had an identity crisis.
Was it an LST? Was it an indexed basket of LSTs (like an ETF)? Was its primary purpose to maximize APY for INF holders at all costs? What about our partners' LSTs? Was it a delegation program for our partners? Whose interests should be paramount - LST issuers with holdings within INF, or INF holders themselves? What about Sanctum? What problems was it fundamentally solving for? Is it an LST competing with our partners' LSTs?
Much of this was unclear.
What became obvious was that Infinity is Sanctum's answer to the liquidity problem for LSTs. Without it, we couldn't issue a brand new LST for a partner in under an hour at almost zero cost.
The conclusion was: Infinity enables Sanctum's core staking business.
And so, that became the clear answer to its primary purpose: enabling liquidity for our partners' LSTs. The answer to all other questions were downstream of this.
This clarity made it obvious what we should do: provide much cheaper access to Infinity's liquidity for our partners than those LSTs which are not our partners; optimize INF's basket of LSTs to ensure a more consistent and higher APY for holders to attract and grow TVL, in the process deepening the liquidity Infinity is able to provide to our partners.
And so we set out to build INF v2 with three objectives in mind.
- First of its kind continuous Yield (every single block)
- Better APY (by optimizing its basket)
- More sustainable revenue model (performance fee)
Let me break down the three.
First of its kind continuous Yield (every single block)
With v2, we have implemented a way to continuously stream yields to INF holders every single slot (well, block) in between the epoch boundaries. This hasn't been done with Solana LSTs before and we're pioneering this mechanism with INF. If it works well, it'll open up many further possibilities for us to explore.
INF previously experienced volatile APY spikes due to huge earnings in short periods when it processed large swap volumes (a feature, not a bug). But what this meant was that INF's APY would be humming along as normal and then one epoch it might spike up to 20% (or greater) APY before going back to normal. Due to APY reporting standards across DeFi (medians), INF’s true outperformance was largely hidden. And the likelihood of a user seeing INF’s true (average) APY on any given day was lower.
By introducing this yield smoothing, INF's APY will, on average, be higher for longer - which should help users better intuit INF's APY outperformance. I suspect many INF multiply users will appreciate it too.
Better APY (by optimizing its basket)
Infinity previously held a long-tail basket of many LSTs. The make-up of which LSTs and how much wasn't optimized. The portfolio approach was passive, not active.
Meaning when a user swapped an LST for SOL via Infinity, we did not queue up that newly added LST for unstake or rebalance out of it.
With v2, our portfolio strategy will be further optimized and evolve, and the rebalancing and unstaking will be automated every single epoch. This should result in a higher average APY for holders.
More sustainable revenue model (performance fee)
Infinity is an LST which represents a basket of LSTs plus unstaked SOL and allows LSTs and SOL to be swapped through it. When this happens, INF earns an additional fee for enabling this swap. This extra fee is where INF's APY outperformance comes from.
Previously, Sanctum earned a small amount of revenue by charging 10% on these swap fees. This did not incentivize us to optimize the portfolio for maximum APY performance.
With INF v2, we’ve scrapped the previous revenue mechanism and Sanctum will now earn a 5% performance fee on the yield (APY) of INF. This better aligns incentives of Sanctum with INF holders: more portfolio optimization and stronger APY. This means when INF holders win, so does Sanctum.
Bonus - Better fees for partner LSTs
Finally, to ensure our partner LSTs and their users get the most out of INF, we’ve also optimized the LST swap fees that INF charges so that holders of Sanctum partner LSTs (e.g. JupSOL, dSOL and many more) pay substantially less to access the SOL liquidity of Infinity.
To wrap
While INF v2 marks a significant change and improvement to INF, there is still work to be done.
Since setting out to design and build INF v2 late last year, we have continued to see Prop-AMM's rise to provide more of on-chain trading volumes. We don't think this trend will reverse any time soon.
As such, we are watching this closely and exploring how we can make INF's LST swaps even more competitive so our partners and their users get the best swap rates on their LSTs and Sanctum continues to be the liquidity layer for Solana LSTs.