Term Labs today launched its fixed-rate lending protocol on Ethereum. Term Finance represents a milestone towards developing a more mature crypto market with regulations more familiar to traditional finance lenders and borrowers than current Decentralized Finance (DeFi) protocols.
Variable rates presently dominate DeFi, making it riskier for large professional portfolios.
Interest rates on protocols like Aave and Compound are calculated per supply and demand. If a crypto whale deposits substantial funds into a lending pool, rates drop across the board corresponding to abundant supply, and vice versa.
Term Labs drew inspiration from the U.S. Treasury’s auction calendar model which matches borrowers and lenders with preset rates, locking the collateral in a smart contract for the loan term.
Term Finance guarantees no slippage, where a trade’s actual price differs from expected or spread between listed buy and sell prices. The team hopes investors and traders will be attracted by low fees and high-quality collateral like Bitcoin, Ethereum, and stablecoins from Circle and Tether.
In February, Term Labs raised $2.5 million led by Electric Capital, with oinbase">Coinbase Ventures, Circle Ventures, Robot Ventures, and Mexc Ventures, to build the lending platform.
Co-founder Billy Welch confirmed to Decrypt that Term Finance will expand to other blockchains and layer-2 solutions “shortly after” the initial Ethereum launch, becoming multi-chain soon without specific dates.
Among 2,000 testnet users and private mainnet beta testers, the most popular activities were borrowing stablecoins against liquid staking tokens (LSTs), especially Lido Finance’s wrapped stETH, and borrowing Tether against USDC due to Tether’s volatile rates. Welch expects borrowing ETH against LSTs to enhance staking yields will also be common.
The minimum loan duration is four weeks, but Welch foresees 1- and 3-month loans being most popular initially, with goals to eventually host 1-year or longer terms.
Welch stated they are focused on overcollateralized borrowing and lending of high-quality blue-chip assets at loan-to-value ratios in line with Aave and Compound. Beta rates for borrowing stables against crypto ranged from low to mid 3%. Another collateral like wBTC is expected to be popular, but for now, they are sticking to major assets.
