Duration Ladder
Duration Laddering is a portfolio construction strategy that earns bond-like carry while keeping liquidity and rate risk under control.
Instead of committing all capital to a single lock-yield maturity, traders split exposure across multiple tenors and roll the ladder forward, harvesting both fixed yield and rolldown as positions age.
Core Idea
Fixed/lock-yield positions behave like simple bonds:
you earn a predictable yield to maturity
the position’s value tends to accrete toward redemption
longer maturities usually pay more, but carry more duration risk
A ladder reduces concentration in any single maturity by spreading capital across a series of expiries (e.g., 1w / 1m / 3m). As the shortest leg matures, proceeds are reinvested into the longest leg—keeping the ladder alive.
How It Works on XCCY
On XCCY, the ladder is built from:
Lock Yield fixed lending positions (fixed income)
Optionally paired with IRS overlays (coin-set or USDC-set) to fine-tune fixed vs floating exposure
A standard ladder might look like:
20% in short maturity (liquidity + flexibility)
30% in medium maturity (core carry)
50% in longer maturity (carry + curve pickup)
This creates a steady “cashflow schedule” where some capital naturally unlocks at regular intervals.
Why Rolldown Matters
Rolldown is the mechanical effect where a position becomes “shorter duration” over time. If the yield curve is upward sloping, a longer tenor position often:
earns higher carry initially, and
can gain value as it “rolls” into a lower-yield part of the curve (even before maturity).
This is one of the cleanest sources of “slow, steady” edge in fixed-income style trading.
Operating the Ladder
A typical workflow:
Choose ladder tenors (e.g., weekly + monthly + quarterly)
Allocate capital across legs
As the front leg matures:
withdraw proceeds,
reinvest into the back leg (extend duration)
Periodically rebalance if the curve or risk appetite changes
Optionally, if rates spike and fixed becomes attractive:
extend ladder duration (shift weight longer)
If rates fall and you want flexibility:
shorten ladder duration (shift weight shorter)
Tooling Advantage
Effective laddering relies on:
a maturity schedule dashboard (what unlocks when),
yield curve snapshots (fixed rates by tenor),
execution cost monitoring (spreads, penalties, rollover friction),
scenario analysis (how portfolio value changes if yields shift).
Risk Considerations
Mark-to-market risk: if yields rise, longer legs can temporarily lose value even if held to maturity
Liquidity risk: secondary markets can widen in stress, making early exits expensive
Reinvestment risk: when positions mature, future yields may be lower
Concentration risk: overweighting the back leg turns the ladder into a duration bet
Protocol/asset risk: depends on the settlement asset and contract assumptions
The ladder reduces—but does not eliminate—rate and liquidity risk.
Why This Is Sustainable
Duration ladders work because they align with real user needs:
treasuries want predictable income without locking everything long-term,
traders want carry without betting the farm on one maturity,
rolling creates disciplined, systematic reinvestment instead of emotional timing.
It’s not dependent on incentives, liquidations, or temporary dislocations—just the existence of a term structure.
When This Strategy Fits
lending users seeking predictable income
treasuries managing stable reserves
conservative yield funds with defined liquidity needs
traders who want steady carry and controlled duration exposure
Summary
Duration Laddering turns lock-yield lending into a structured income portfolio: you earn fixed carry, benefit from rolldown, maintain regular liquidity, and avoid overcommitting to a single maturity—making it one of the most practical strategies for fixed-income trading in crypto.
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