Davey’s Lending Protocols have attracted billions of dollars in liquidity, delivering big returns, but the sector is in dire need of more fixed-rate lending, according to one researcher.
A number of protocols, including the yield protocol, the UMA protocol and the parent structure, are already entering the fixed-rate lending and lending markets to support cryptocurrency.
According to Messari researcher Jack Purdy, fixed interest rates instill confidence in lenders and borrowers who want to accurately predict the cost and return on equity.
He referred to interest rate curves, which show interest rates with different maturities, and added that steeper curves mean that lenders need higher returns to compensate them for the capital they hold. The flatter curves show lenders are happy with lower yields as the prospects for future growth are less promising.
Stable and predictable financial markets are important for future planning when calculating profits and considering long-term investor sentiment. The researcher also mentioned the yield curve reversal that occurs when investors are willing to hedge against lower long-term interest rates as they expect a more severe slowdown in growth.
In traditional finance, this results in lower interest rates than central banks, and this indicator can be used to predict a recession.
Davy’s current situation is far from predictable and can be described as a combination of Wild West protocols offering highly volatile margins and four-digit profits to attract liquidity providers and offensive farmers.
Some of the latest archives in Yearn Finance are indicative and refer to other protocols. The new GUSD vault currently provides over 2200% per annum on fixed deposits in foreign currency.
The company boasted three-figure annual revenue at launch, but quickly backed down. As a result, ETH liquidity has also declined by about 60% since the Treasury opened in early September.
A jump in profitability is when DeFi farmers go from protocol to protocol in search of the next quick cash, resulting in token inflows and floods, as well as high network fees, which are largely unacceptable for long-term investment and financial planning.
The researcher has highlighted several DeFi protocols that take a consistent approach to borrowing and lending cryptocurrencies, including the return protocol that launched on October 20. The platform created the first type of token called “fyTokens” (fixed income). FyDai to activate loan / fixed loan and interest rate with MakerDAO stablecoin.
The UMA protocol provides a dollar return whereby investors can deposit up to 80% of the dollar’s value in UUSD, which can be redeemed with a $ 1 security deposit on time. Tokens can be sold before maturity at a discount to those who wish to wait for the prize.
The central system lending protocol uses an instrument similar to a bond, or a group of guarantors, which is a commitment in the chain that is due on a specified date in the future, so that selling and buying debt tokens allows loans and borrowings to be made at a fixed price. interest rate. The researcher concluded that an increase in lending and lending at a fixed interest rate would bring TradFi and DeFi closer together.
“These new fixed price products are suitable for all types of financial instruments we are accustomed to, as well as new instruments available in defi’s uniquely customizable world.”