DeFi needs more fixed-rate lending protocols: Messari researcher

DeFi lending protocols have attracted billions of dollars in liquidity provision by offering huge returns, however the sector badly needs more fixed rate lending options according to one researcher.

A number of protocols, including Yield Protocol, UMA Protocol, and Mainframe are already venturing into fixed rate lending and borrowing markets for crypto collateral.

According to Messari researcher Jack Purdy fixed rates provide certainty for lenders and borrowers looking to accurately forecast their costs and returns on capital.

Fixed-rate lending is one of the most important primitives underpinning the global financial system.

The current DeFi scene is anything but predictable and could be described as a Wild West mashup of protocols offering largely unsustainable returns and boasting yields in four figures to lure liquidity providers and degen farmers.

Some of the recent vaults on Yearn Finance that tap into other protocols are illustrative.

Yield hopping is where DeFi farmers jump from protocol to protocol seeking out the next quick buck, resulting in token pump and dumps, and surging network fees, all of which is largely unsustainable for longer term investing and financial planning.

The researcher highlighted a couple of DeFi protocols that are taking the fixed term approach to crypto borrowing and lending including Yield Protocol which went live on October 20.

The Mainframe Lending Protocol uses a bond-like instrument, or guarantor pool, representing an on-chain obligation that settles on a specific future date so that buying and selling the tokenized debt enables fixed-rate lending and borrowing.

The researcher concluded that more fixed rate lending and borrowing will bring TradFi and DeFi closer together.