The Path Forward for DeFi Fixed Income and Yield Tokens

AUG 17, 2022 • 16 Min Read

Aaron D.

DISCLOSURES: THE AUTHOR OF THIS REPORT IS A DISCORD MODERATOR FOR PENDLE. THE AUTHOR OF THIS REPORT HAS NO MATERIAL OPEN POSITIONS IN ASSETS MENTIONED IN THIS REPORT. THE AUTHOR HASNOT PURCHASED OR SOLD ANY TOKEN FOR WHICH THE AUTHOR HAS MATERIAL NON-PUBLIC INFORMATION DURING THE RESEARCH AND DRAFTING OF THIS REPORT. DELPHI VENTURES HAS INVESTED IN APWINE (APW) AND DYDX. THESE STATEMENTS ARE INTENDED TO DISCLOSE ANY CONFLICT OF INTEREST AND SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO PURCHASE OR SELL ANY TOKEN, OR TO USE ANY PROTOCOL. THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND YOU SHOULD NOT MAKE INVESTMENT DECISIONS BASED SOLELY ON IT. THIS IS NOT INVESTMENT ADVICE.

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Introduction

Since early 2021, crypto derivatives have taken off at a wild pace. But the success of DeFi derivatives’ has been restrained to a select few exchanges. Most derivatives traded in crypto today are tied to the price of a crypto asset. While there is obvious market-fit for these instruments, there’s an entire world of derivatives beyond single-asset instruments. An interesting type of derivative, ones centered around interest rates and yields, started to pop up in DeFi early last year. But their existence has gone broadly unnoticed by the market.

While extremely popular in TradFi, yield derivatives and fixed income products have struggled to attain usage. When looking at an aggregate of the DeFi derivatives market, we can see that yield derivatives – including fixed income – are largely overshadowed by asset perpetuals on protocols

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