As we touched on earlier this week, the nature of DeFi lending is largely variable. Even as we begin to see more projects rising to tackle the fixed lending gap, there remains a need for projects which can bridge the gap.
Yesterday, a rising project called Swap Rate made a big step forward in this regard by integrating Aave‘s fixed and floating rates into their platform.
We are excited to announce that interest rate swaps for Aave have been added to Swap Rate from @Opium_Network ??
Learn all about what you can do with interest rate swaps here: https://t.co/S8aw2ydpv7
— Aave (@AaveAave) March 31, 2020
For those unfamiliar with Swap Rate, the product allows you to swap a variable rate for a fixed rate or vice versa. Better yet, users can take out up to 10x leverage on that trade, essentially creating a derivatives market for interest rate swaps.
Why Does This Matter?
Since launch, Swap Rate had only integrated Compound and it’s supported stablecoins like Dai and USDC. With the new integration of Aave’s Dai interest rates, we can assume the Swap Rate is gearing up for a much larger push in the coming year.
Seeing as stablecoins have historically held the most attractive lending rates, it’s no surprise that they are the first to make their way into the product. Moving forward, we can envision other stablecoin-specific lending platforms like dYdX or Dharma to make their way into the platform, soon following by other Ethereum-based assets like ETH and ZRX.
Relative to the larger DeFi ecosystem, the estimated size of the global interest rate swap market was more than 500 trillion USD in 2019 in nominal terms and 12 trillion gross. This demonstrates a significant growth opportunity if and when DeFi lending makes its way to the mainstream.
Further, Swap Rate’s baked in derivatives markets allow traders to see strong returns by going long or short on any support interest rate – a notion which is still extremely nascent in the cryptocurrency industry today.
The Big Picture
Projects like Swap Rate go to show just has quickly the DeFi industry is maturing. Whereas this time last year the sector was largely limited to straightforward products like lending, we’re now seeing composability unlock a variety of tools which can further extend permissionless financial primitives.
In case you missed our simple manual of how to FIX your @compoundfinance rate on https://t.co/IePdbaGzEy.
Check it out here –> https://t.co/nfP1XyrQGE#DeFi #Ethereum #IRS pic.twitter.com/QpkYJ5zBNF
— Opium.Team (@Opium_Network) November 12, 2019
What this goes to say is that in the coming years we can expect the wider DeFi landscape to become increasingly more complex – likely creating a suite of products and tool which go beyond what the legacy financial industry offers today.
In the meantime, we’ll be keeping a close eye on all things lending! To keep up with Swap Rate, follow the creators – Opium Network – on Twitter.
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.
