Tenor
The most widely used DeFi lending protocols today provide variable interest rates for both lenders and borrowers. Although variable-rate lending is a cornerstone of DeFi, its lack of predictability makes it less than ideal for certain users and caps DeFi’s growth.
To put into context, in traditional financial markets, fixed-rate lending accounts for the majority of lending activity but in DeFi it represents only a small fraction of the total lending market. The top three variable-rate protocols—Aave, MakerDAO, and Morpho—collectively have a TVL of approximately $29 billion. Meanwhile, the three largest fixed-rate protocols—Notional, Pendle, and Term—have a combined TVL of around $5.5 billion.
As DeFi matures, we believe onchain fixed rate solutions will need to grow to meet the demands of market participants and drive even more lending activity onchain.
Tenor is a lending protocol that delivers fixed interest rates through a novel mechanism that leverages an interest rate Automated Market Maker (AMM), which matches lenders and borrowers at predetermined rates. Unlike variable rate lending protocols, which rely on fluctuating interest rates driven by utilization, Tenor’s AMM enables users to lock in fixed rates. Borrowers specify their desired loan amount and duration, while lenders provide liquidity at fixed rates, creating a direct, onchain matching mechanism. This eliminates the unpredictability of borrowing costs and ensures both parties know their interest rates upfront. For more detail on how the mechanism works, check out a post the team wrote here.
We believe the timing is ideal for Tenor because of DeFi’s continued technological advancements and increasing sophistication. Tenor’s unique mechanism for achieving fixed rates is made possible by building on protocols like Morpho and Uniswap V4, both of which were released in recent months and allow for Tenor to avoid the inefficiencies of previous fixed rate protocol designs. Additionally, we’re seeing more sophisticated and institutional market participants entering DeFi, who will require fixed rates to expand their onchain activities.
Tenor’s three founders—Pierre-Yves, David, and Hugo—have been working in DeFi for a couple of years. Pierre-Yves previously worked at the fixed-rate protocol Notional, while David and Hugo were at Morpho. They’ve been obsessing about DeFi lending and fixed rates for a while and we’re confident they will deliver a foundational piece of infrastructure that can drive the next phase of DeFi’s growth. We’re excited to support them on their journey by leading their seed round.
Originally published on cherry.xyz