2025-08-30
In the lending, savings and other scenarios of decentralized finance (DeFi), interest rates are affected by factors such as market supply and demand, capital flow, and emergencies, and fluctuate frequently and are difficult to predict. This instability exposes borrowers to the risk of a sharp increase in repayment costs and makes it difficult for investors to plan for long-term returns. As a response, DeFi fixed-rate protocols provide users with predictable financial services by locking in interest rates. So, what exactly is a DeFi fixed-rate protocol? How does it work? And what role does it play in the DeFi ecosystem?
DeFi fixed-rate protocol is a financial protocol built on blockchain technology and smart contracts, aiming to provide fixed-rate services for businesses such as lending and savings. Unlike traditional DeFi protocols where floating interest rates change with the market, fixed-rate protocols set the interest rate levels of both lenders and borrowers in advance through smart contracts, which remain unchanged for the agreed period. For example, if a borrower borrows funds at a fixed interest rate of 10%, the repayment rate will always remain at 10% regardless of how the market interest rate fluctuates; depositors can also clearly know the maturity yield when depositing funds. This certainty relies on the transparency of blockchain and the automatic execution ability of smart contracts. Without the need for centralized institutional guarantees, it can ensure stable interest rates and reduce the risks brought by market fluctuations.
The operation of DeFi fixed-rate protocols relies on risk hedging mechanisms and market supply and demand balance strategies. On the one hand, protocols usually adopt an over-collateralization model, requiring borrowers to provide collateral worth more than the loan amount (such as cryptocurrency). Smart contracts monitor the value of collateral in real-time. When the price falls close to the clearing line, additional collateral or forced liquidation processes are triggered to ensure fund safety. On the other hand, protocols balance interest rate risks by introducing derivatives or arbitrage strategies. For example, using interest rate swap contracts, fixed-rate risks are transferred to participants willing to bear fluctuations, or adjusting fund supply and demand through automated market makers (AMM) mechanisms to stabilize interest rates. In addition, some protocols also introduce oracles to obtain off-chain market data as a reference for interest rate setting and adjustment. HashKey Exchange delves into the operation mechanism of fixed-rate protocols when exploring innovative DeFi services, providing users with safer and more stable investment choices.
DeFi fixed-rate protocols play a key role in various scenarios. In the lending field, entrepreneurs can lock in financing costs through fixed-rate protocols, avoid increasing repayment pressure due to interest rate increases, and invest in project development with peace of mind. For investors, fixed-rate savings products provide a stable income channel, suitable for users with low risk appetite. In Decentralized Autonomous Organization (DAO), fixed-rate protocols can be used to manage organizational funds and ensure that the cost of using funds is controllable. HashKey Exchange Following the development trend of DeFi fixed-rate protocols, continuously optimizing services, exploring how to apply them to platform businesses, and providing users with richer stable income products. However, when customers engage in fixed-rate agreements, they need to be vigilant about risks such as smart contract loopholes, collateral clearing, and extreme market fluctuations, and plan investment and lending strategies reasonably.