Fixed-Rate Credit Products Emerge in Lending Space Amid Market Volatility

The lending space has seen a significant increase in active loan sizes reaching $285 billion, with almost all demand coming from floating-rate loans. However, during market stress periods, this mechanism can fail as utilization rates change rapidly, causing borrowing rates to skyrocket.

This leads to lenders exiting the market or reducing leverage, resulting in decreased efficiency for the entire credit market. In fact, DeFi money markets have solved one of traditional lending's difficulties: allowing users to immediately lock collateral and borrow funds.

Yet, a pressing issue remains unsolved: borrowers do not know their final debt costs before loan maturity. To address this, many products are emerging that push the market towards fixed-rate, fixed-term credit products. In these markets, lenders can receive fixed returns and know exactly how much they will earn from deposits; borrowers also clearly understand how much financing costs they will incur.

The demand for these markets primarily comes from three types of participants: term-matched borrowers (funds, treasury, RWA issuers, and basis/suitability trading teams), cost-determined borrowers (cyclic lenders, leveraged yield strategy users, and traders), and lending/outside investors (treasuries, market makers, and fund allocators).