DeFi is not just about trading, swapping, and cryptocurrency; it can bring the whole banking system by tokenization of tangible assets on blockchain. These tangible assets are called real world assets (RWA) in the crypto market, which include, but are not limited to, real estate, commodities, art, and even US Treasury securities. The current market cap of RWAs crypto is about $47 billion, which attracts lots of credit providers, and one of them is HIFI Finance.

The HIFI platform allows users to borrow crypto assets at a fixed rate without worrying about selling holding portfolios or getting interest returns for lending out holding portfolios. By leveraging blockchain technology, it democratizes access to financial services, enhancing security and user control and its native HIFI token adds an extra layer of engagement, enabling governance and pooling.

What is Hifi Finance?

HIFI Finance is a decentralized finance protocol on the Ethereum blockchain that allows users to borrow and lend crypto assets at a fixed interest rate against tokenized assets. Like other decentralized finance platforms, HIFI Finance follows the automatic market maker (AMM) model to run the smart contract. The platform is designed to cater to a broad audience involved in lending and borrowing ecosystems and let anyone borrow against their crypto or supported real-world asset collateral. The aim is to tokenize everything on blockchain and borrow with cryptocurrency.

Using the HIFI platform, borrowers can access various cryptocurrencies at a fixed rate without selling them and spend them according to their needs. On the other hand, lenders can lend supported cryptocurrency and earn fixed interest rates according to terms and tokens. Users can also participate in the liquidity pool by providing liquidity with their USDC. Because users are liquidity providers, they will earn fee-based rewards on every trade in this particular pool.

Background

HIFI Finance was founded by Mick Hagen in 2017 and was known as Mainframe. The initial goal of Mainframe was to provide a communications layer for Web3 and financial services through decentralized protocols. In 2020, Mick Hagen left the project, and Doug Leonard joined the team as the new CEO. In 2021, after DAO voting, Mainframe rebranded as HIFI Finance and changed its service to decentralized finance. Not just rebranded, it also changed its

main net after thorough testing on Polygon, formal verification, and a high-quality audit. They changed the HIFI v1 Lending Protocol from Polygon to Ethereum in 2022.

Hifi Finance’s Features

The main feature of HIFI finance is providing seamless lending and borrowing experiences at fixed rates, which sets it apart from other DeFi platforms. Users can lend their digital assets to earn interest or borrow assets by collateralizing their holdings.

Borrowing

HIFI finance allows users to borrow assets at a fixed rate for a fixed term and this fixed rate is determined by an automated market maker smart contract. The more users borrow, the higher the rate will be. To get a loan, HIFI requires more collateral than debt, and if the user fails to maintain the required collateral at any time, the amount may be liquidated. To borrow an asset, the user must deposit colleterial in the protocol to get tokens against colleterial. These hTokens can be sold for the underlying token (USDC), locking in the borrowing rate. Users can unlock their collateral after maturity and repay debt. They can also pay debt before maturity, positively or negatively affecting the interest rate.

Borrowing market and collateral.

Lending

The lending interest rate works as borrowing. When users lend in the HIFI protocol, they buy future cash payments, representing tokens called hTokens. An hToken is a token that can be redeemed one-for-one for an underlying asset at some future date. Currently, only USDC is available for lending, and the lending interest is determined by the difference between the face value of the token and the price the user pays for it. To lend at a fixed rate, the user must buy hToken against the lending volume, and when the lending amount is borrowed, the user will receive a fixed interest rate. The hTokens can be held until the maturity date. The user can also exit the lending position early by selling their hToken for an underlying asset, which may affect the interest rate. There is no deadline for redeeming hTokens.

Lending market

Liquidity

HIFI has integrated AMM for a better pooling experience. Providing liquidity is different from lending. Adding liquidity to the HIFI markets is an excellent way to put idle capital to work, as the risk of permanent loss is minimal. HIFI uses a custom fee model rather than a percentage fee charge on every trade. HIFI charges a fee proportional to both the interest rate and the time to maturity. The liquidity pool is best for small amounts of money, while lending is best for larger amounts.

How Does Hifi Finance Work?

How lending and borrowing process work - image from HIFI Finance.

HIFI Finance operates through a smart contract (automatic market maker) deployed on the blockchain. This smart contract facilitates various transactions, such as lending and borrowing. When a user wants to lend their assets, they deposit them into the pool, which is processed by the smart contract, which then makes these assets available for borrowing. Borrowers can access these assets by providing collateral, which is also managed through a smart contract. On the other hand, for liquidity providers, HIFI Finance has a fee-based liquidity pool, and any user can earn a HIFI reward by depositing their USDT in the pool.

The interest rates for lending and borrowing are determined algorithmically based on supply and demand dynamics, ensuring a fair and transparent market. Additionally, the platform employs advanced risk management protocols to safeguard against volatility and ensure the stability of the ecosystem.

Borrowing process

To borrow, the user must deposit large amounts of collateral, which is very high; in the case of Ethereum, it is 125%. Assuming the user wants to burrow USDC and deposit one ETH worth $4,000 as collateral.

• The user deposits ETH worth $4,000 in the protocol because the collateral ratio is 125%. The user is allowed to borrow 3,200 hUSDC from any available maturity.
• The user decides to borrow on May 1, 2024, worth 3,200 hUSDCJul24 (Jul24 means hToken expiring on July 1, 2024).
• The user sold 3,200 hUSDCJul24 in the open market for 3,187 USDC.
• So now the user has successfully borrowed 3,187 USDC and has 3,200 USDC in debt, due in three months. In other words, the user has borrowed at 5% APR.

Lending process

The lending process is less complicated than borrowing, to lend assets, the user must deposit USDC in protocol to buy hTokens. For example, on May 1, 2024, if a user buys 3,200 hUSDC that expires on July 1, 2024, for 3,187, they will earn an implied rate of interest of 5% APR. This lending amount can be withdrawn at any time by selling their hTokens for an underlying asset.

Hifi Governance and Hifi DAO

The HIFI protocol operates through a community-driven process, enabling participants to manage the lending protocol by proposing, voting on, and implementing changes. The HIFI Governance Forum serves as the central platform for discussing protocol management, where anyone can read, create, and comment on proposals to enhance the protocol. Accepted proposals proceed to a voting stage, where participants can vote based on their voting power by connecting their wallet addresses. Voting outcomes can adjust protocol settings, introduce new markets, add collateral types, or allocate resources to specific initiatives. The HIFI uses separate smart contracts for both governance and token implementation. The governance contracts are based on the Ampleforth fork of GovernorBravo, while token implementation (which is ERC-20) originates from Uniswap’s fork (which has ERC-2612 features) of Compound Governance.

The Hifi DAO (Decentralized Autonomous Organization) works as a legal entity, and anyone holding HIFI tokens has ownership rights, encompassing all critical components of the protocol, the token itself, and associated intellectual property. This right protects holders from any risk, and if any changes are required, they can only be executed following clear approval from the Hifi DAO. To protect DAO from legal action, HIFI has adopted a legal structure under the Trustless Unincorporated Nonprofit Association Agreement (TUNAA). This structure allows HIFI to act as a nonprofit association, not a partnership or an investment company.

Previous Hifi DAO voting result.

What is the hToken?

hToken is a NFT-based, zero-coupon bond that tracks an ERC-20 underlying asset that can be redeemed one-for-one for an underlying asset at some future date. The protocol automatically mints hTokens when a user deposits collateral to borrow or lends assets to provide liquidity into the pool in exchange for hTokens. There are many hTokens on the platform with unique features, and every hToken has its own collateral ratio, which tells how much collateral the user needs to borrow from this pool. HIFI also has some NFTs and RAW backed ERC-20 hTokens that can be used as collateral to borrow assets.

What is the Hifi Token?

Image source - Coingecko

HIFI Finance has its own ERC-20-based native token called Hifi Finance (HIFI) to manage the protocol, ensuring a dynamic, transparent, and responsive governance process for the DAO. The holder of HIFI can participate in voting rights, and this voting right protects them from any risk and influences changes in the lending or borrowing protocol. The delegate’s voting rights are automatically adjusted when the owner’s token balance changes. The HIFI token has nothing to do with borrowing or lending on the platform, but it can be traded on listed exchanges.

• Name: Hifi Finance
• Symbol: HIFI
• Current price: $0.85
• Total supply: 141.2M
• Circulating supply: 126.98M
• Chain type: Ethereum (ERC-20)

• Token Type: Utility and Governance

• Real-time data from CoinmarketCap.com

How do I Buy HIFI Tokens?

Hifi token performance.

• Go to gate.io exchange and create an account by entering your email ID and password.
• Set up your fund password by entering settings; this password will be asked during fund withdrawal.
• To buy HIFI coins you must complete KYC with the proper documents.
• After KYC, go to Spot Trade, search for HIFI, and select.
• After opening the new page, fill in the amount in HIFI or USDT you want to buy, and click the buy button.
• After a successful buy, go to the Wallet > Withdraw page.
• Here, select HIFI, and then enter the wallet address.
• It will ask you for your fund password, 2FA, and email code; enter them correctly and submit.
• Your HIFI will arrive in your wallet after a few confirmations.

Conclusion

The tokenization of real-world assets may not be popular, but experienced users are taking advantage of it. The HIFI protocol is built on the Ethereum ecosystem because it supports the ETH coin as collateral, so ETH holders can take long-term advantage of it. HIFI’s unique fixed interest rate provides predictability for both borrowing and lending to its users, but on the other hand, its overly high collateral requirements make users think twice about HIFI Finance before using it. But as the DeFi sector continues to evolve, HIFI Finance is well-positioned to play a central role in shaping the future of tokenization finance.