Slashing mechanics

Documentation Index

Fetch the complete documentation index at: https://docs.infinifi.xyz/llms.txt

Use this file to discover all available pages before exploring further.

​

Purpose

This document describes how infiniFi programmatically applies losses to the junior tranche — holders of locked iUSD, and how staked iUSD depositors may be affected — in the event that an underlying lending asset or credit position experiences a net asset value (NAV) drawdown. The mechanism is designed to protect senior depositors, maintain protocol solvency, and ensure that loss attribution occurs in a transparent, rule-based, and on-chain verifiable manner.

​

Tranche structure overview

infiniFi operates a two-tranche liability structure against its lending and investment portfolio. The tranches differ by liquidity, yield entitlement, and loss-absorption priority. The yield premium earned by Locked-iUSD holders compensates them for accepting the first-loss position. Partners, lenders, and borrowers should understand that this slashing mechanism is the contractual and on-chain expression of that risk.

​

Triggering conditions

Triggering conditions include, but are not limited to:

• A borrower defaults on a loan obligation, and collateral liquidation recovers less than the outstanding principal plus accrued interest.
• An underlying DeFi position or vault experiences a permanent loss of principal, such as bad debt socialization on a lending protocol, a smart contract exploit, or an oracle-driven liquidation shortfall.
• An offchain yield source is marked to a recovery value below par after a reported default.
• A receivables fund, such as mGLOBAL, reports a NAV drawdown where the immediate impact is unclear. In that case, infiniFi would assess originator concentration data provided by Fasanara, model the worst-case scenario, and apply slashing so future Locked-iUSD depositors are not disadvantaged by delayed NAV reporting.
• Accrued but unpaid interest is written off in connection with a restructuring or settlement.
• A loss occurs for any other reason and exceeds the $25,000 safety buffer held to facilitate slippage.

Unrealized mark-to-market fluctuations on liquid assets do not, by themselves, constitute a triggering condition. A slashing event requires a confirmed, realized impairment.

​

Slashing mechanics

​

Loss quantification

When a triggering condition occurs, the total impairment amount is calculated as the difference between the affected position’s expected recovery value and its carrying value at the time of impairment recognition. This amount is expressed in USD-equivalent terms and becomes the slash amount.

​

Junior tranche absorption

The slash amount is applied pro-rata across all Locked-iUSD positions outstanding at the time of the triggering event, including positions that are unwinding. The protocol applies this loss by adjusting the redemption value of Locked-iUSD relative to iUSD.

• The Locked-iUSD redemption rate is reduced by the proportion of total junior tranche capital represented by the slash amount.
• The adjustment is applied atomically and on-chain, so no Locked-iUSD holder receives preferential treatment.
• The adjustment is permanent. Once applied, the lower redemption rate becomes the new baseline for subsequent accruals and redemptions.

After a slashing event, infiniFi Labs and any related partners will pursue available technical and legal recovery options. If recovery efforts succeed, recovered amounts would be airdropped pro-rata to the slashed Locked-iUSD pool of capital.

​

Example

The following example shows how a $9,000,000 bad debt event is absorbed across a $20,000,000 capital structure. In this scenario, the $9,000,000 bad debt is fully absorbed by the $10,000,000 junior tranche. Each Locked-iUSD token is redeemable at $0.10, which reflects a 90% reduction and near-total consumption of the junior buffer. Senior iUSD holders are fully protected in this example. Their $10,000,000 in capital is untouched and redeems at par. If the bad debt exceeded $10,000,000, which is the full size of the junior tranche, any residual loss would begin to impair the senior tranche on the same pro-rata basis.

​

Edge case example

If funds in the infiniFi portfolio are stuck but it is not yet clear whether there is a crystallized loss, the following steps would apply. For example, this could apply if infiniFi were deployed into Resolv’s RLP when the USR hack took place.

1. Locked-iUSD redemptions would be frozen.
2. The Locked-iUSD exchange rate would reflect an assumed total loss of capital, modeling the worst-case scenario so there is certainty.
3. Locked-iUSD would be slashed as described above.
4. If recovery efforts succeed, recovered funds would be airdropped to the slashed Locked-iUSD holders.

​

Senior tranche protection

Senior iUSD holders are insulated from losses unless the junior tranche is fully depleted. Only if the slash amount exceeds the total Locked-iUSD capital outstanding would any impairment propagate to the senior tranche. In that case, residual losses would be applied to senior iUSD redemption values using the same pro-rata mechanism.

​

Process overview

​

Governance and oversight

Slashing events involving clear-cut defaults or on-chain liquidation shortfalls are executed programmatically by the protocol without requiring a governance vote, subject to automated circuit breakers. In all cases, the on-chain transaction record provides an immutable audit trail of the impairment amount, the redemption rate adjustment, and the block timestamp of execution.

​

Implications for partners and borrowers

Partners and borrowers interacting with infiniFi should note the following:

• Lending against siUSD provides an additional safety buffer, in the form of a discounted LTV, against loss.
• Partners distributing Locked-iUSD or integrating it into downstream products should disclose this loss-absorption mechanism to their own end users.
• The existence and size of the junior tranche buffer is publicly observable on-chain, providing real-time visibility into the protocol’s loss-absorption capacity.

​

Disclaimer

This page is provided for informational purposes only and does not constitute legal, financial, or investment advice. The mechanics described here are subject to change as the infiniFi protocol evolves and governance parameters are updated. Recipients should review current on-chain contract parameters and any applicable Master Borrower Agreements for definitive terms.