Decentralized finance (DeFi) lending protocols (also referred to as DeFi lending platforms), have grown in popularity in recent years as crypto adoption has increased. One of the fundamental features of DeFi lending platforms is borrowing, where users can take out loan funds from by using their crypto assets as collateral.

Similar to lending platforms in the traditional financial system, DeFi loans charge interest to borrowers. There are two types of interest rates in DeFi: floating and fixed. In this article we’ll explore the differences between the two and take a look at fixed rates in particular.

How Fixed-Rate DeFi Lending Differs From Floating-Rate Lending

Fixed-rate DeFi loans, as the name suggests, offer borrowers a fixed, unchanging interest rate for the duration of the entire loan term. This key feature sets them apart from floating-rate loans where interest rates may vary over the lifetime of the loan.

Key Differences

The following are the key differences between fixed-rate decentralized finance loans and floating-rate loans:

• Predictability: Fixed-rate loans provide borrowers with financial predictability. Borrowers know precisely how much interest they'll pay over the life of the loan, making budgeting and financial planning more straightforward.

• Stability: In a market where the prices of digital assets and floating-interest rates can be volatile, fixed-rate crypto loans offer stability. Borrowers are protected from sudden interest rate spikes, which could otherwise significantly increase the costs of borrowing.

• Interest Rate Lock: Fixed-rate loans lock in the interest rate at the time of borrowing. This means that even if market interest rates rise, the borrower continues to pay the initially agreed-upon rate, potentially resulting in cost savings.

How Fixed Rates are Determined

The interest rates for fixed-rate loans in the decentralized financial system are determined by various factors but they are primarily based on market conditions.

In setting fixed-interest rates, DeFi protocols consider the supply and demand for borrowing and lending specific crypto assets. Since every loan requires capital, the lending platform has to incentivize depositors to supply that capital through offering interest on deposits (i.e. yield). The yield is paid for by charging the borrower interest.

As with traditional banks, in decentralized lending, when demand for borrowing outpaces the supply, interest rates rise so that borrowers pay more and attract more depositors. When borrowing demand weakens, interest rates decrease in response. Unlike floating rates, which fluctuate frequently, fixed rates are typically set at the time of borrowing and remain unchanged throughout the loan term, only updating to reflect changes in supply and demand for new loans.

How to Find The Interest Rate for Fixed-Rate Loans

Finding the interest rates for fixed-rate loans is not always straightforward, however, accessing this information is essential for borrowers seeking stability and predictability when borrowing.

To find and compare the current fixed interest rates, borrowers can utilize various resources, including:

• Official Protocol Websites: Most DeFi lending platforms maintain official websites where users can find real-time data on interest rates, collateral requirements, and other relevant information. Notable fixed-rate DeFi platforms like Notional Finance provide rate data on their websites.

• DeFi Aggregators: DeFi lending platform aggregators like Rocko simplify the process of finding and comparing interest rates across various protocols. Rocko aggregates data from multiple DeFi platforms, allowing users to conveniently access up-to-date interest rate information as well as view historical average rates. Borrowers can benefit from Rocko's user-friendly interface to make informed decisions about their fixed-rate loans.

Popular Fixed-Rate Protocols

There are several DeFi protocols that offer fixed-rate loans for borrowers who want to lock in their interest rates and avoid volatility. One of the most popular and reputable fixed-rate platforms is Notional Finance.

Notional Finance

Notional Finance is a DeFi platform that specializes in fixed-rate lending and borrowing. It offers users the ability to enter into fixed-rate lending markets for specific crypto assets, providing access to stable, predictable interest rates.

Key Features:

• Specialized fixed-rate lending markets

• Competitive interest rates

Wrapping Up

If you want to get liquidity using your crypto holdings without having to sell, and you want to lock in a static rate, decentralized finance fixed-interest rates may be for you (as long as you have the necessary collateral.)

If you want to simplify the process of getting a fixed-rate loan and access key tools to help manage your loan, check out Rocko!