Fixed Rates Landscape: What You Need to Know
Pendle, Spectra, DELV, & Term
The fixed rates space in crypto is an interesting one. While fixed income may be one of the more boring areas of TradFi to some, fixed rates stand out in crypto due to the expected volatility in the space. Fixed rates protocols have had to evolve to stay afloat over time, due to the retail-heavy focus of DeFi, as well as the demand for speculating on volatility and variable rates as opposed to fixed rates. From rebrands to chain migrations and more, this sector in crypto has seen a lot of change over time from its biggest players.
Our coverage of fixed rates has been expansive, including the likes of Pendle, Pryzm, and more. In this edition, we’ll be focusing on Pendle, Spectra, DELV, and Term, and analyzing how these protocols work, their thoughts on the fixed rates landscape, upcoming events, and more.
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Background on Pendle
Pendle needs little introduction; it serves as a permissionless yield-trading protocol where users can execute various yield-management strategies. We’ve extensively covered Pendle through our Project Breakdown, Industry Intel, and more. We even listed Pendle as one of our top 10 winners of the year in our Annual Intel 2023 report, as TVL skyrocketed 1,600%, a figure which has climbed many multiples higher in 2024 with the advent of restaking.
Pendle, founded in 2020, gained traction in 2023 with liquid staking tokens (LSTs) and perps DEX assets and saw significant growth in 2024 with narratives around restaking points and EigenLayer/LRTs. The protocol initially targeted high APY assets from the DeFi summer, which were unsustainable. Pendle focused on simplifying the user interface and educating users from 2023 onwards, which helped increase adoption. Today, Pendle offers attractive fixed rates and a points market for diverse users. The team recognizes the importance of both retail and institutional players for price discovery. Lido’s $stETH established a sizable yield market, which became Pendle’s first significant use case.
The team also emphasizes the need to make the mechanics accessible and understandable for users to drive adoption, which is visible when browsing through their educational materials as well as UX tweaks designed to make things simple. Pendle relies on the liquidity of underlying assets to create markets, focusing on popular and promising assets. He acknowledges the slippage issue, particularly on the YT side, due to its leveraged nature. Improvements and new asset listings are expected with the projects’ V3 launch. The liquidity of top pools has mitigated price impact issues for PT and YT trades.
Overall, Pendle’s expansions are primarily asset-driven, focusing on EVM-compatible chains where liquidity already exists. The team prefers a calculated approach, consolidating resources where they have a presence unless a new chain offers a compelling asset opportunity. Pendle also differentiates use cases between Ethereum mainnet and L2s, with the former attracting larger entities and whales and the latter fostering a vibrant yield trading environment. Pendle focuses on product improvements, including better trading experiences and auto-rolling liquidity for more passive management.
Background on Spectra
Spectra is an open interest rate derivatives protocol, formerly known as ‘APWine’. Following DeFi Summer in 2020, the Spectra team, which at the time was a group of CS students at the same school, created APWINE to speculate on the sustainability of high APYs. The thinking was that these yields were incredibly unsustainable. APWine v1 was launched in early 2021 as a permissioned protocol with manual integrations for each protocol like Aave and Compound. The team discontinued the initial pools last year and has been developing APWine v2 for almost two years, which is now on mainnet in a private launch phase. The new design is completely permissionless, AMM agnostic, and more efficient. Gaspard Peduzzi, Co-founder of Spectra, believes that the fixed rate tools will eventually integrate into DeFi similarly to traditional finance.
Spectra initially deployed on Ethereum mainnet and Polygon, facing high gas fees as a challenge on the mainnet. While the team focuses on mainnet and some L2s, the merging of liquidity across different chains is not yet operational at this point. The protocol’s imminent release is scheduled soon, along with a backlog of features and integrations. This long-anticipated launch comes off the backs of multiple audits performed this year. There are specific plans for better liquidity provision and market decoration customization.
Spectra effectively combined PT and YT pools by changing their yield mechanism, allowing for progressive claims. This change concentrated liquidity and made it easier to manage. Spectra is working on a liquidity module for better management and leveraging well-integrated infrastructure like Curve AMM to capitalize on volume and LP revenues, aiming to attract more liquidity. In general, the team believes both fixed rates and variable rates will coexist. While institutional use might drive more sophisticated instruments, the DeFi space will still need highly liquid and viable variable rates to cater to current and new DeFi users.
Background on DELV
DELV is a new AMM for fixed and variable yield positions underpinned by a novel pricing mechanism, formerly known as Element Finance. Early fixed-rate protocol (like Element) often made a mistake by targeting retail users instead of institutions. Charles, CEO of DELV, understands the importance of targeting institutional users and adding tools to facilitate their participation in DeFi, as fixed-income markets are more suited to institutional users than retail traders.
Element Finance initially faced issues with fragmented liquidity due to separate markets for PTs (Principal Tokens) and YTs (Yield Tokens). Hyperdrive, which is DELV’s novel AMM for both fixed and variable rates, addresses this by combining liquidity pools for longs and shorts, with shorts offering multiplied exposure to variable rates. Hyperdrive also features mint-on-demand, eliminating race conditions and partial maturity issues, thus making the market more efficient and robust.
Hyperdrive will launch on the Ethereum mainnet initially but aims to provide users access to the best liquidity across chains. DELV plans to abstract away the chain selection process for users, using tools like liquidity routers and bridges to ensure users get the best rates and liquidity regardless of the chain. As Hyperdrive’s launch approaches, the team is focused on integrations and growth. Key features include fixed borrowing across multiple protocols, leveraging fixed rates, and user-friendly UX improvements. The team is conducting ongoing research into optimizing liquidity fragmentation and multi-term variants.
Background on Term
Term is a non-custodial fixed-rate collateralized protocol lending on-chain, born out of the need for fixed rates and fixed terms. Term focuses on fixed-rate borrowing and lending through a traditional collateralized model and weekly auctions. The term team sees plenty of room for growth in the fixed-rate market. While most of DeFi is retail-driven, with users looking for high returns through speculation, the top 1% of users on platforms like Aave hold a significant portion of the total value locked (TVL), indicating a substantial market already exists on-chain. Institutional adoption will also grow, with BlackRock’s entrance into the industry being a key example of this.
When it comes to Term’s design, the protocol uses a weekly auction model, similar to a low-frequency order book, which eliminates slippage by matching supply and demand at a single price. This model focuses on primary market clearing, separating it from secondary market liquidity, which will be tackled later. The approach simplifies finding borrowers and lenders without the need for third-party LPs, making it more efficient for large-scale transactions. Term Finance focuses primarily on Ethereum L1, which remains the liquidity layer valued by large whales despite high gas fees. The project recently expanded to Avalanche and is considering other L2s as well, noting the challenges with token mobility and security across chains. The team highlights the importance of evaluating each chain as a separate market and recognizing the current limitations of cross-chain liquidity.
Dion Chu, Founder of Term Labs (the company behind Term Finance), predicts a steady state where fixed rates slightly dominate, referencing TradFi markets where fixed rates are preferred for longer-term needs. He sees both types coexisting due to their distinct use cases. The team has recently announced their recent formal verification and upcoming release with fallback oracles. They’ve also teased a new campaign and plans for auto-looping features to broaden the borrower base, making the protocol more accessible.
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