The DeFi mania has cooled, but those crazy stories are still vivid.
When "farming" was at its peak, all kinds of fruits and vegetables came into battle, and the annualized rate of return (APY) of the first mine was rising all the way. The APY of 1000%+ or even 10000%+ attracted countless speculators.
However, it should be noted that the APY provided by almost all DeFi products (including basic lending agreements such as Maker and Compound) is a floating rate of return, and the actual annualized return will increase with the growth of funds in the pool and the mining rules. Adjustment and price changes of output tokens fluctuate greatly. In other words, investors cannot accurately predict forward capital returns based on book APY.
In fact, in the traditional financial market, fixed-rate loans are the most important form of loans. Allan Niemerg, founder of Yield Protocol, wrote that about 90% of mortgages in the United States are fixed-rate loans. Currently, some of the largest financial products are either fixed rate products themselves—such as the bond market (over $100 trillion) or derivative products with a fixed rate component—such as the interest rate swap market (estimated to exceed $500 trillion ).
In recent months, there have been increasing calls for the introduction of fixed interest rates in the DeFi market, and products with this concept have also appeared one after another. Odaily selected several representative products - Yield Protocol, 88mph, Notional, Barnbridge, analyzed and compared each product, and tried to clarify the operational logic differences between different products.
From the perspective of whether the product itself provides lending functions, we can divide the above products into two categories:
The product itself provides lending functions: Yield Protocol, Notional;
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The first category: the product itself provides lending functions
Representatives of this type of product include Yield Protocol and Notional.
Yield Protocol was incubated and established by the cryptocurrency investment institution Paradigm, and the current product has been releasedbeta v0.2 version. The protocol works much like zero-coupon bonds in traditional financial markets. Specifically, Yield Protocol introduced a derivative token called fyToken. Since the test version only supports the stable currency Dai for the time being, the derivative token is currently only fyDai. fyDai can be converted to Dai at a 1:1 mechanism, but it can only be executed after the specified time expires, so its price is often lower than Dai itself.
In terms of the process, the borrower can choose to use ETH as collateral (the minimum mortgage rate is consistent with Maker) to generate a certain amount of fyDai. Since the price of fyDai is generally lower than Dai itself, the lender can choose to buy fyDai with a relatively small amount of Dai. In this way, the borrower can borrow a certain amount of Dai they need by mortgaging ETH, and the lender can exchange fyDai 1:1 back to Dai that is more than the principal after maturity, earning income from the difference.
According to different expiration times, fyDai itself will have many subdivisions (as shown in the above table), the farther the expiration time is, the lower the price of fyDai will be (for example, the price of fyDai-DEC20 is higher than that of fyDai-DEC21).
For lenders, the price difference between fyDai and Dai is the source of income. After buying fyDai, the income represented by the price difference will also be fixed. Take the above picture as an example, assuming that the lender purchases 1 fyDai at a price of 0.95 Dai after one year, since the principal (0.95 Dai) and future return (returning to 1 Dai after one year) have been determined, a simple calculation shows that the lender The yield to maturity is about 5.3%.
Another representative fixed-rate lending agreement is Notional, which has previously received $1.3 million in investment from eight investors including Coinbase Ventures, 1confirmation, and Polychain, and has released a Beta version on the Ethereum network.
Similar to Yield Protocol, Notional currently only supports the stable currency Dai. Both borrowers and lenders can choose three different loan cycles. The longer the loan cycle, the higher the corresponding interest rate.
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The second category: the product itself does not directly provide loans, and needs to rely on other agreements to generate income
Such products are represented by 88mph and Barnbridge.
DeFi Fixed Rate Generation Protocol88mpheventeventGained a certain amount of attention.
88mph currently supports USDC, UNI, yCRV, crvSBTC and other tokens. The protocol will put the tokens deposited by users into DeFi products such as Compound, Aave and yEarn to earn floating income (corresponding to the generation of aUSDC, cUSDC, cUNI, yUSD and ycrvSBTC and other five pools), and by aggregating capital pools (sharing risks among different pools), income bonds (which can be simply understood as selling floating income in a period of time in the future in exchange for urgently needed cash flow), etc. In-depth design to try to ensure that users can get stable income even when the floating interest rate drops sharply.
Users can deposit funds into the corresponding pools and choose seven different redemption cycles of 7, 14, 30, 60, 90, 180, and 365. 88mph will directly give the fixed interest rate of each pool on the interface (take 75% of the current floating yield). It should be noted that the interest rate within 88mph will only change according to the pool, and different loan cycles will not affect the interest rate.
After depositing funds, users will receive an ERC-721 protocol non-fungible token (NFT) representing their rights, which can be transferred to other accounts or sold directly on marketplaces such as OpenSea. When the loan expires, the user can get back his principal and the interest based on the fixed rate output, and the equity NFT will also be destroyed simultaneously.
Barnbridge has also recently caused a certain amount of heat in the market. At the beginning of the pledge mining, the total lock-up amount of the agreement exceeded 200 million US dollars in just a dozen hours.
Odaily has sorted out Barnbridge'srun logicTo put it simply, Barnbridge tries to cut the benefits and risks of investing in other DeFi protocols by issuing derivatives.
According to the roadmap, Barnbridge plans to launch Smart Yield Bonds products in the first quarter of next year. To illustrate with an example:
Assume that the total amount of pledged assets in a DeFi application is 1000 DAI, and the APY is not fixed.
Theoretically, the entire pledged asset can be divided into two parts according to the risk tendency: 700 DAI belongs to the Senior part (the red area in the figure below, the risk tendency is lower), and the rate of return is fixed at 5%; 300 DAI belongs to the Junior part (the blue area in the figure below) Colored area, higher risk propensity) part, the rate of return is not fixed. The benefits of doing this are:
If the final APY of the application can reach 10%, then the annualized income will be 100 DAI, of which the Senior part will get 700 * 5% = 35 DAI, and the Junior part will get 75 DAI, compared to the principal of 300 DAI , with a yield as high as 21.6%.
If the final APY of the application is only 3%, then the annualized income will be 30 DAI, of which the Senior part will still get 700 * 5% = 35 DAI, and the Junior part will need to make up for the loss of 5 DAI.
Summarize
Summarize
Protocols such as Yield Protocol and Notional that provide their own lending functions hope to introduce the concept of zero-coupon bonds into the DeFi field, but because the overall logic of the products is not complicated, they appear somewhat similar. For the sake of stability, most of these products currently only support stablecoins (such as Dai), and it remains to be seen whether they can be extended to other types of more currencies in the future.
In terms of security, Yield Protocol has passedTrail of Bitsaudit. It should be noted that the current version of Yield Protocol does not support governance, so there is no governance token; similarly, there is no governance token related content found in Notional's white paper.
Products such as Barnbridge and 88mph are relatively more flexible. They do not directly provide loans, but rely on other DeFi protocols to generate income. Since the integrated DeFi protocols provide floating interest rates, it is inevitable that profits will be lower than expected. The solution adopted by Barnbridge in this regard is to let high-risk investors replace low-risk investors to take risks; 88mph uses some in-depth designs to try to ensure users’ fixed income.
Hacken, a third-party organization, has completed the verification of the Barnbridge smart contractindependent audit, at 88mphAuditHas also been done by Quantstamp. It should be noted that the coverage of the above-mentioned audit work is only the agreement itself. Another key risk factor faced by this type of product is the contract risk of integrating the DeFi agreement. Therefore, in the initial stage, it is generally only selected to integrate with mature DeFi agreements—— For example, Compound, Aave, and yEarn are selected for 88mph.
In general, although new DeFi products featuring the concept of fixed interest rates have appeared one after another, and the staking mining launched by Barnbridge and 88mph have received good attention, but the products of most projects have not yet been officially released. Odaily believes that in the currency circle where the risk appetite is much higher than that of the traditional financial market, most investors have long been accustomed to tightrope-like stimulation. The yield provided by fixed-rate products does not seem sexy enough. Whether it can successfully land in the encryption market still needs to wait for more The landing of multiple projects; on the other hand, traditional institutions standing on the other side of the market pay more attention to risk control while pursuing profits. The design of fixed-rate DeFi products is also close to traditional financial products, which may attract some interested investors.
