DeFi Lending Landscape

Decentralized Finance (DeFi) started with the idea of reimagining and improving traditional banking through smart contracts and decentralized protocols. Despite the rise of various new trends, lending remains a core focus of DeFi.

Here’s the issue: Although DeFi protocols manage over $200 billion in assets, they still struggle with one of the most fundamental financial services—lending and borrowing. Today, nearly all DeFi lending products use variable interest rates that change every second. This is a stark contrast to traditional finance, where variable rates typically adjust monthly or even weekly. Such rapid fluctuations can lead to instability in a system that should provide financial stability.

Lending is a major component of DeFi, with approximately $40 billion or more locked into lending protocols like AAVE, Compound, and Morpho—all of which rely on variable rates.

We believe that DeFi is in need of more stability, and fixed-interest-rate products offer a promising solution. Fixed-income products have seen spectacular growth over the past year, driven in large part by users seeking predictable, long-term financing options. With fixed rates, borrowers can lock in a consistent cost of capital, which is especially beneficial when borrowing for longer durations. This stability not only improves financial planning for borrowers but also enhances the overall resilience of the DeFi ecosystem.

The solution, we propose, is to introduce fixed-interest-rate products. Fixed-income products have already seen spectacular growth over the past year as users seek more predictable, long-term financial planning options. By shifting toward fixed-rate lending and borrowing, DeFi can provide greater stability while still harnessing the innovative power of decentralized protocols.