Variable & fixed yield markets
Unburdened by legacy infrastructure and the vested interests of incumbent market providers, DeFi has exploded in popularity. This has been driven by the attractive rates and innovative products offered. DeFi offers a range of possibilities from borrowing and lending funds and earning a passive income from existing cryptocurrency assets. Unlike traditional finance, such services are generally far quicker to access, with fewer checks.
Established DeFi lending platforms such as MakerDAO, Compound and AAVE offer variable yield borrowing/lending which has typically dominated the market. This service is attractive, yet complex and occasionally overwhelming for casual users to navigate. Existing protocols generally have a bias towards experienced users who have a high level of understanding of esoteric concepts like yield rates, staking rewards and target APY. Depositing or shifting between positions regularly incurs high transaction fees, further to a situation in which only those with large investments can successfully participate. When gas fees are high, it is only economically viable to invest, adapt or withdraw large sums. Many cite this as a barrier to the expansion of DeFi to mainstream retail users.
Several projects have been established to address this gap and offer fixed yield products, including Element Finance and Liquity. The aim of such protocols is to address the drawbacks of the variable rate market. At the early stage of their life cycle, these projects presently have limited liquidity but can potentially address a gap in the market which will better serve newer, less experienced users and those seeking a more certain return from their DeFi investments.