How It Works

Floating rates vs fixed rates

Most DeFi rates float because they come from supply and demand. More borrowers? Rates rise. More deposits? Rates fall. That’s fine—until you need predictability.

A fixed rate doesn’t come from supply and demand alone. It comes from someone else taking the other side of the risk.

That’s where swaps come in.

Swaps under the hood

An interest rate swap is simply an agreement between two parties:

• One side pays a fixed rate

• The other side pays a floating rate

No principal moves. Only interest differences settle over time.

The protocol runs pools of these swaps across different yield sources—lending markets, staking yields, real-world assets, and more. Liquidity providers support these pools, earning yield for taking rate exposure.

Deposits and loans are “wrapped swaps”

When the user deposits funds into a fixed-rate product, they are not directly trading swaps. Instead:

• The protocol constructs a package of swaps and hedges

• These positions offset floating exposure internally

• The user receives a simple promise: a fixed rate for a fixed time

The same is true for borrowing. A fixed-rate loan is just the protocol locking in the borrower’s future interest cost using its own swap markets.

Importantly, users do not need to understand swaps to use the product. The complexity stays inside the system.

Risk management that feels like banking

Behind the scenes, the protocol runs a portfolio-level risk engine similar to what large banks use.

Instead of treating every position in isolation, it looks at how risks offset each other:

• A position that benefits from rising rates can hedge one that suffers from it

• Exposure is measured by sensitivity to rate changes, not just leverage

• Capital is allocated where risk is actually taken

This allows the system to be conservative where it needs to be—and efficient where it can be.