Why Fixed Yield?
Choosing between Fixed and Variable Rates
There are two types of interest rates, fixed and variable. Interest rates tell a story about the current condition of the crypto market. In bull markets rates rise, and in bear markets they tend to drop.
In our previous blog, we discussed how Tempus simplifies yield farming for DeFi enthusiasts. We also mentioned the benefits of receiving fixed rate on your staked ETH and optimizing your exposure to variable ETH2.0 staking yield.
But is it always beneficial to fix your yields? Well, it depends on your outlook on the market and your risk tolerance. This post highlights the benefits of fixed yields and why many yield farmers should consider exchanging variable rates to fixed rates on Tempus.
Why Fixed Rates?
The market is volatile and fluctuates constantly. Fixed rates are a safer bet in the dynamic crypto market.
Leading lending protocols like Aave and Compound offer a variable interest rate that is algorithmically adjusted based on market demand. During a bull run, the appetite for borrowing increases, which results in a rise of interest rates. On the other hand, low interest rates are common when the demand for borrowing decreases. If fewer people borrow, interest rates fall. Lenders, in this case, could potentially opt for fixed yield to protect themselves from the risk of falling interest rates.
In the context of ETH 2.0 staking, yields fall when the number of validators increases. As users stake more ETH, staking rewards will naturally decline. Stakers, in this case, could potentially opt for fixed yield to protect themselves from the risk of falling staking rewards (which occurs in case the number of validators substantially increases).
Fixed Rates on Tempus
Users can deposit their YBTs like stETH (Lido staked ETH), aTokens or cTokens to convert them into an equal number of Capitals and Yields.
If you are one of those traders who wants to fix their yields, you can sell all your Yield in return for more Capitals. The total number of Capitals you end up hold after the swap will indicate the dollar value of YBT you will receive once the contract matures. This way, you will know the amount earned at the end of maturity of contract irrespective of the changing market conditions.
Fixed interest rates make it easier for financial planning. Lenders just need to know how much they will receive at the end of maturity and can plan their budget accordingly.
Beyond Fixed Rates
If you believe that the interest rates are going to rise, then we are sure you’d like to make the most out of that opportunity. On Tempus, you can trade some OR all of your Capitals for Yields to earn additional income (in case the interest rate for the YBT rises). You can also choose to adjust your position by trading a certain fraction of your Capitals and Yields on the custom TempusAMM (more on it in our future blogs). Lastly, we don’t charge any penalties for early withdrawals! Trade your Capitals and Yields in a way that Capitals = Yields and get your YBT back!
What’s next?
We will be publishing blogs on multiple topics ranging from our custom AMM to the benefits and the “how-to” for all our products! The team is working tirelessly to provide you with one of the most capital efficient secondary markets for yields. Audit for Tempus starts in August and we will launch on testnet soon after.
Disclaimer
The information provided in this article is provided for informational purposes only and does not constitute, and should not be construed as, investment advice, or a recommendation to buy, sell, or otherwise transact in any investment, including any products or services, or an invitation, offer, or solicitation to engage in any investment activity. You alone are responsible for determining whether any investment, investment strategy, or related transaction is appropriate for you based on your personal investment objectives, financial circumstances, and risk tolerance. In addition, nothing in this article shall, or is intended to, constitute financial, legal, accounting, or tax advice. We recommend that you seek independent advice if you are in any doubt.
