> For the complete documentation index, see [llms.txt](https://v1risk.infinity.exchange/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://v1risk.infinity.exchange/market-risk/the-two-market-model.md). # The Two-Market Model For a primer, please refer to[ this article](https://www.infinity.exchange/article/introducing-the-two-market-model-tmm) The two-market model, while a new DeFi construct, has been battle-tested, and is used heavily in traditional finance. Catalysing this model in DeFi is not without its challenges however. The underlying assumption with the Two-Market model is that there is an almost unlimited amount of participants on either side of both lending and borrowing, each with their own desire or risk appetite to participate in such a market. To catalyze this market and address the issue of going from zero-to-one, we look to the Liquidity Provider model to create off-the-shelf demand. A portion of protocol revenues will be shared with the LPs in exchange for the risks that they take. The share of revenues are a function of the overall size of the Reference Market vs the Subscription Market, the fee structure, and the absolute level of interest rates. For example: * Subscription Market Size: $100mm * LP Size: $10mm * Fees: 10% of the prevailing Reference Interest Rate (for illustration) * Reference Interest Rate: 5% The interest rate that **Lenders** would receive would be 4.5%, i.e. reference rate (5%) **minus** the fee (5% x 10% = 0.5%), and similarly the interest rate that **Borrowers** would pay would be 5.5%, i.e. the reference rate (5%) **plus** the fee (5% x 10% = 0.5%). So the absolute fee revenue is $0.5mm (i.e. $100mm x 0.50%) from Lenders plus $0.5mm (i.e. $100mm x 0.50%) from Borrowers respectively. Sharing these fees across LPs then equates to: * Lender LPs: $0.5mm fee income on $10mm = 5% Fee Income * Borrower LPs: $0.5mm fee income on $10mm = 5% Fee Income Note in addition that the Lender LP may be accruing interest on a portion of their loaned assets, and that we may not evenly divide protocol revenue into the Lender LP, and Borrower LP positions evenly. We will monitor this process, and allocate fees where we feel it drives the most depth, and health for the system, and ecosystem as well. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://v1risk.infinity.exchange/market-risk/the-two-market-model.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.