A researcher from the crypto asset investment firm, Paradigm, has co-authored a whitepaper for a new decentralized finance, or DeFi, lending protocol boasting fixed-interest rates.
The whitepaper for Yield protocol was written by Paradigm’s Dan Robinson and Allan Niemberg — who announced the project on May 8.
Niemberg also announced that Yield Protocol has received seed investment from Paradigm, which will be designated toward building the initial version of the product.
New DeFi protocol promises fixed-rate lending
The Ethereum (ETH)-based protocol purports to introduce “fixed-term, fixed-rate lending and interest-rate markets to decentralized finance.”
Yield’s whitepaper describes “a standard for a token that settles based on the value of a target asset on a specified future date, and which is backed by some quantity of a collateral asset."
While DeFi protocols like MakerDAO (MKR) have garnered significant popularity within the crypto community over the past years, the floating nature interest rates associated with these vehicles have proven to be subject to significant volatility — with Maker loan fees fluctuating between 0.5% and 20% during 2019.
Yield Protocol takes inspiration from ‘zero-coupon bonds’
Yield Protocol’s first utility will facilitate the creation and issuance of ERC-20-based zero-coupon bonds — a tradable debt instrument that pays its holder at a fixed price on maturity. The whitepaper states:
“yTokens are like zero-coupon bonds: on-chain obligations that settle on a specific future date based on the price of some target asset, and are secured by collateral in another asset.”
The first of Yield’s bonds, dubbed yTokens, will be yDAI — allowing users to borrow and lend MakerDAO’s stablecoin Dai at fixed rates using ETH as collateral.
$900 million is currently locked up in DeFi protocols in total, of which MakerDAO represents 53.4%.