Term Finance: How to Lend or Borrow with Fixed Term Loans

Before we get started, this is not a recommendation or endorsement to buy any token(s) mentioned.

Fixed-rate lending is a fundamental building block of modern finance, offering a predictability and certainty to enterprises and households as it relates to their debt or rate of return. In traditional finance, debt markets are the largest financial market in the world, with total outstanding debt in 2021 for the US alone at $88 trillion vs just $42 trillion for U.S. equities, a large majority of which is fixed-rate debt.

In DeFi, lenders and borrowers remain mostly reliant on variable interest rates like we find on DeFi money markets like Aave or Compound. These rates have plummeted during the crypto bear market but then violently spiked for ETH leading up to the transition to Proof of Stake in September 2022 and more recently the Shapella Upgrade, which enabled withdrawing staked ETH from the Beacon Chain. DeFi variable rates can often be driven by newsworthy events and while lenders might enjoy that spike in rates, it’s very unsettling for borrowers and yield farmers looking for more predictability in on-chain borrowing rates. DeFi lenders and borrowers are required to make certain trade-offs that give rise to this lending trilemma, where they are forced to pick between stability, scalability, and transparency.

Until now! Term Finance introduces a new DeFi primitive with fixed rate lending and borrowing via on-chain auctions, modeled on tri-party repo arrangements common in TradFi. Term Finance is a noncustodial, scalable fixed-rate lending protocol. With Term, users can access liquidity on fixed terms without compromising on fees, slippage or having to trust CeFi counterparties, who have clearly