Fixed-Rate Lending: The Missing Piece in DeFi

Fixed-rate lending must be the future of DeFi Lending, as more and more DeFi users are seeking on-chain financial stability.

Why Fixed-Rate Lending Matters

DeFi lending is dominated by variable rates, where fluctuations make long-term planning difficult. In contrast, fixed-rate lending introduces stability and predictability, which both individuals and institutions need. In traditional finance (TradFi), fixed-income markets are three times larger than equities and serve as the backbone of global economies.

DeFi will not mature without its own fixed-income foundation.

Momentum of Fixed-Interest Products

Fixed-rate products remain small at ~2.5% of DeFi TVL (mid-2024), but they have grown more than 5,000% in a year, driven by protocols like Pendle Finance. This shows demand for stability is real and increasing.

Split as of mid-2024:

• Variable-rate lending (Aave, Compound, Morpho): ~$17B TVL

• Fixed-rate lending (Notional, Pendle, Yield): ~$6B TVL

The numbers confirm that fixed-rate markets are still early, yet their growth trajectory signals the start of a structural shift.

The Borrowing Gap

Most fixed-rate TVL comes from yield products, while borrowing is underdeveloped with less than $20M in active offerings. This imbalance blocks DeFi from replicating the full fixed-income ecosystem that powers traditional markets.

To unlock swaps, derivatives, and hedging tools, borrowing must catch up. Spine is building both sides of the market: Fixed-rate lending and borrowing, to close this gap and open the door to advanced products.

The Need for On-chain Fixed-Interest-Rate Products:

By providing predictability and good risk management, fixed-rate lending protocols could enable borrowers and lenders to transact with huge benefits in transparency and scalability. As the DeFi ecosystem becomes more developed over time, fixed-rate lending protocols are well-positioned to become an indispensable part of the DeFi economy, offering an alternative to variable-rate lending and catering to the needs of institutions and users seeking predictability and well-designed risk management platforms.

Assurance for Financial Predictability

One of the primary benefits of fixed-rate lending protocols is the predictability they offer to users. By locking in a fixed interest rate, borrowers can accurately forecast their payments over the entire loan tenure. Lenders also benefit from the ability to calculate their yield earn, enabling them to plan investment strategies with certainty.

Equally important, the predictable interest rates facilitate trading procedures for users. Having rates locked in, users do not need to constantly monitor and adjust for fluctuating interest rates. With just a crypto wallet and internet access, any user in the world can access competitive interest rates and secure their financial investment in one click without multiple steps of verification.

Foundation for Innovation and Accessibility

Fixed-rate products create the term structure that DeFi needs for pricing and risk transfer. This enables swaps, basis trades, structured notes, and yield ladders, and it makes these instruments composable across AMMs and money markets. Any wallet can lock a predictable borrow cost or yield in a single transaction with transparent settlement and audit trails. Institutions can route, hedge, and roll positions programmatically across venues without intermediaries or geographic limits.

Leverage to Comprehensive Financial Services

Fixed-rate lending protocols spark the development of financial instruments within the DeFi ecosystem. By providing predictable interest rates, these protocols facilitate the creation of interest rate derivatives. Users can leverage these derivatives to hedge interest-rate risks, unlocking crucial risk management capabilities.

Additionally, fixed-rate lending protocols are foundational components for expanding financial services, serving more investment needs. By establishing predictable interest rates, these protocols create a trading flow that enables other DeFi aspects such as yield-bearing and swapping. This will provide seamless accessibility to a certain efficient yield earned with minimal risks.

Toward DeFi Infrastructure

Fixed-rate lending is the infrastructure needed to strengthen DeFi. It makes risk manageable, yields predictable, and advanced instruments possible. Variable-rate protocols will remain important, but fixed-rate markets will complement them by anchoring DeFi in stability.

Our Vision

Our vision is to deliver fixed-rate lending and borrowing as essential building blocks for DeFi’s financial system, establishing on-chain fixed income as the transparent and scalable equivalent of what underpins TradFi.