Interest rate swaps are a common stance in standard finance practises. Now that cryptocurrency and the blockchain are going mainstream and maturing as a viable means of trade, the possibilities of DeFi in the financial landscape are great. Decentralised finance looks to be quite different for market players when compared to traditional finance and one of the reasons why is the fixed interest rate payable in the DeFi protocol and THE DECENTRALISED FINANCE .
In the centralised system and THE DECENTRALISED FINANCE of banking as a trading institution, the market players are able to exchange one interest payment rate for the future for another. The practice is usually done as a precaution against losses in the market. It could also be used to estimate whether the interest rates are rising or falling based on predictions on the market’s future and to manage credit risk as well. Swaps of this nature might come as floating to floating, floating to fixed, or fixed to floating, with each one of these instances having its unique contract. Ownership of the other side’s debt is not accompanied by the derivative contract, but the rates of interest are switched. At the same time, the loan’s value is stuck with the initial party.
A vanilla swap is a special case of interest rate swap where one transactor attains risk protection of a standard rate whereas the opposite transactor gains the opportunity to accrue a profit from a declining float rate. A small company may want to engage in a risky floating interest rate deal with a bigger institution. The smaller party gets to manage credit risk due to the larger party being willing to accept uncertainties and unpredictability in the interest rate. This grants them a fixed interest rate, and that, in consequence, leaves room for greater financial planning. The bigger institution gains profits from the risky floating rates if they turn up. The volume of OTC is also essential as is shown in the data released by the Bank of International Settlements. As things stand, the notional value when it comes to derivative contracts is at over $485 trillion.
Sadly, the traditional management regarding traded products and other forms of trade has seen a new change that goes back to the 1980s regarding interest rates. But now, the market has suffered a lot of fees from the banks along with the big cost of settlement. This leads to somewhat of autonomy from the banking institutions. Because of this, decentralized finance is meant to remove the middleman and instead, have a scalable result like the Tempus protocol. The Tempus protocol is an Ethereum network.
HOW TO RESOLVE DEFI SWAPPING- THE DECENTRALISED FINANCE
Speaking of Tempus; it was created on the Ethereum crypto network as a decentralised market on a secondary level of returns. The ETH network on sites such as is suitable for Tempus lets users estimate their revenue from token trade. A unique AMM – which stands for TempusAMM smart contract and is a vital component of the system – gives users the opportunity to deposit their YBTs to a place having particular maturity dates. People can earn at a standard rate or try to predict the profit pay. YBTs are Yield-Bearing Tokens and after they are placed in the Ethereum network, the Tempus protocol divides into two kinds of tokens. One is the principal one and the other is the yield token. After this, traders can engage in token trade against one another using the Tempus protocol known as TempusAMM. In this manner, the Tempus protocol gives traders the trustless edition a more centralised system.
David Garai, the co-founder of Tempus, states that the AMM is what shows us the yield of the pools we, the traders, have, that is determined by the market. He added that it is meant to serve as a counterpart to every single trade on the ETH block explorer and that the standard production of the Tempus protocol in the decentralised finance of Ethereum is sourced from the transactions that users are engaged in using principal yields via the TempusAMM. These principals are then redeemed for the rudimentary digital asset on Maturity. Pragmatically, swapping is built on the Stable Pools Balancer, version two. The fees for swaps are paid to liquidity providers. These providers gain either through swap fees or liquidity provider gain.
A single pool follows a separate set of rules from another as well as has a different time of maturity. These factors are all determined by the underlying protocol of the TempusAMM. The protocol has a simple, accessible UI and this helps traders in navigating the ecosystem and their yields.
The ecosystem has, in addition, countered issues about the separate yield liquidity present in crypto farms. There, the need for stablecoins to produce AMMs is prevalent as is the need for other back tokens. 50% of the pools have to be in the backing token while the other 50% is the yield asset of the farm. (mythdetector.ge) Due to this, liquidity providers earn half of what they could be earning instead. Thankfully, the Tempus protocol handles this problem by turning ETH to stETH with the use of Lido. After this, there is a mint to the two types of yields – principal and yield – from the liquidity in exchange. The principal tokens give a standard rate of interest but the yield varies depending on the market. Swaps from one to another can then occur, with users doing this per their prerogative and the risk level.
MASS YIELD FOR THE TIME TO COME
As a protocol based on the Ethereum network, The team at Tempus is preparing for Ethereum 2.0 which will launch in early 2022. Garai said that he and his team have noticed a sizable request for a fixed rate ETH 2.0 in a trustless protocol when it comes to staking and that his team is making that their main priority in the coming months. There are investors who are not as adventurous and thus, wish to have more assurance in their yields before staking their digital assets.
On December 15th, 2021, Tempus became active on the ETH mainnet with 2 Lido stETH pools usable. Adding to that, there was another iteration but this time, it was in tandem with Rari Capital and happened on the 17th of January, 2022. On the current mainnet, DAI and USDC are usable stablecoins but more are on the way.
Regarding how long Tempus can last, it is worth noting that they received almost $2 million in a seed round and a strategic round of funding leading to $4 million. They were able to accrue $28 million on Copper through a launch of tokens.