Out of the many sectors of the ever-growing DeFi ecosystem, lending has long been known as the most popular both by Total Value Locked and my active users. With protocols like Compound and dYdX paving the way for users to earn passive interest on stablecoins like Dai and USDC, it’s no surprise that historic lending rates as high as 10% have attracted many users to DeFi’s first major use-case.
However, it’s definitely worth noting that virtually all of the major lending protocols are variable, meaning that the interest rate displayed today can quickly change tomorrow. This was best exemplified by Maker and the Dai Savings Rate, in which the rate dropped from 8% to the current rate of 0%.
The Maker Foundation Interim Governance Facilitator has placed an Immediate Executive Vote proposal into the voting system to:
??Lower the Dai Stability Fee to 0.5%
??Increase the Dai Savings Rate Spread to 0.5%
Note: This will set the Dai Savings Rate to 0%
More ??
— Maker (@MakerDAO) March 15, 2020
What this goes to say is that there’s a huge gap for fixed lending – namely in which users are able to lock in collateral for a fixed period of time in exchange for a fixed return.
This past week, we sat down with Blazar – the winners of ETHLondon – as we discussed the need for fixed lending and their proposed solution.
Since then, we saw the launch of DeFi Money Market – a product which offers users a fixed return on ETH using real-world assets.
Yesterday, we saw the mainnet launch of 88mph, a sleek fixed lending application filling the gap by offering users interest up-front right now!
We are L I V E ???
Current Upfront Fixed APY https://t.co/urTymOnwKE$DAI 1.0501%#futurefwd
Not yet audited. Don't use it ??. pic.twitter.com/wXGQQxjpAB
— 88mph (@88mphapp) March 30, 2020
Why Fixed Lending?
Largely speaking, fixed lending *should* provide peace of mind to those worried about the ever-changing rates of the existing lending protocols.
As a new user, we can theorize that someone would be more comfortable knowing how long they are committing to supply capital, along with a clear understanding of what they’re getting back in return. Similarly, fixed lending drastically outsizes the variable lending market, suggesting a strong potential for DeFi growth if executed properly.
As it stands today, perhaps the only notable DeFi protocol offering fixed borrowing is Aave – namely through their Stable APR.
Congrats to @AaveAave for launching on mainnet ??
The protocol introduces some new innovative #DeFi features including:
??Flash loans
??aTokens
?? Stable rate model
??Rate Switching
??Perpetual loans
Read more on how Aave is changing the game??https://t.co/6ig6DPUHw0
— DeFi Rate (@DefiRate) January 9, 2020
Seeing as many centralized providers like BlockFi and Gemini are attuned with offering fixed, it’s interesting to consider protocols which can mitigate trust through the use of smart contracts.
Unique Approaches
One of the more novel aspects of this new suite of fixed lending protocols is the different elements being used to compensate lenders.
In the case of Blazar, the protocol is experimenting with “future Tokens” (also known as fTokens) which are given to the lender when locking their capital. These tokens can be exchanged for the underlying collateral at any point, although they may have to pay back some of their up-front interest if doing so prior to maturity.
The future of stable money is future stable money $fDai #fEverything #ETHLondon pic.twitter.com/us1tveGaPv
— Blazar (@BlazarDeFi) March 2, 2020
With 88Mph, users are immediately paid in Dai, less a 10% service fee which allows the product to become profitable virtually from day one.
Lastly, with DMM, users are allocated mTokens, representing their claim on collateral at the price it was deposited at.
We’re excited to announce the launch of the DMM Ecosystem!
You can start earning a consistent 6.25% return on your $DAI and $USDC right now at https://t.co/QRrDc2TlZc#DeFi $ETH
— DMM DAO (@DMMDAO) March 2, 2020
All this goes to say that with a suite of different token flavors, we’re currently experiencing a race to adoption. If one thing is for sure, the team which can deliver the most compelling product at the lowest cost to users is likely to gain the most traction within the DeFi ecosystem.
With that being said, let projects like Dharma serve as a reminder that the DeFi sector is not the whole pie, and there lies endless amounts of opportunity to tap into legacy markets through attractive savings rates.
1/
??As of today, Dharma is live on the iOS App Store!
?? Earning 7.3% APR on your dollars is as simple as linking up your debit card and tapping a button
?? A seamless non-custodial cryptobank that lives in your pocket
Try it today: https://t.co/9vuapGjK6b pic.twitter.com/yKY5iGrPSj
— Dharma (@Dharma_HQ) February 14, 2020
What to Expect
In the coming weeks, we expect many of these protocols to either go live or open their platform to early testers.
As a user, we recommend proceeding with caution as some of the aforementioned contracts (namely 88mph) are currently unaudited.
Please let iEarn serve as an example of early experiments coming with a larger degree of risk. But, for those willing to take that risk, it’s likely that your usage will help influence the fixed lending primitives of tomorrow!
Results of two audits conducted by @trailofbits are now public: https://t.co/brbLDWumxT.
All the reported (non-critical) issues were fixed, and the fixes are currently live in all Curve contracts
— Curve (@CurveFinance) March 10, 2020
To stay up with the projects mentioned above follow then on Twitter here:
Until then, we’re excited to keep a close eye on this growing sub-sector in the coming months!
Cooper is focused on building compelling blockchain products. He currently works as the managing director at Fitzner Blockchain Consulting and is a contributor to DAOs like MetaCartel and Moloch. He is an active member of the Ethereum community and has a strong interest in for-profit businesses such as The Block Crypto and Messari.
