Term Structure has officially launched its mainnet, with the goal of revolutionizing risk and liquidity management in the decentralized finance (DeFi) space. The history of banking dates back to 1472 in Italy, when the first bank was established to facilitate commerce, secure deposits, and provide loans. These early banking activities laid the foundation for the development of more complex fixed-income instruments. In the 17th century, the Bank of England issued government bonds to finance military conflicts, marking a significant milestone in the expansion of the fixed-income market.
Throughout the centuries, the fixed-income market grew with the introduction of corporate bonds during the Industrial Revolution. Fixed income has become an essential component of the global financial system, offering governments and corporations a stable method of financing while providing investors with predictable returns.
However, despite the growth of DeFi in 2020, there are currently no fixed-income markets in the decentralized finance space. Term Structure Protocol aims to fill this gap by introducing a peer-to-peer fixed-income protocol. This development is a crucial step in integrating traditional finance mechanisms into the emerging field of DeFi, enabled by blockchain technology.
The protocol introduces primary markets for lending and borrowing at fixed terms and rates through auctions, as well as secondary markets for trading fixed-income tokens through order books. It also utilizes innovative tools like zkTrue-up, a customized zero-knowledge rollup, to ensure data availability, eliminate gas fees, and allow users to withdraw their assets without permission.
One of the main challenges for DeFi to reach its full potential from a traditional finance perspective is the difficulty in securing a fixed cost of funds. This is crucial for leveraging higher floating annual percentage yields (APYs) or capitalizing on token price appreciation. Term Structure effectively addresses this challenge by offering peer-to-peer, fixed-rate, and fixed-term lending and borrowing. This allows users to manage their risks and tailor their investment strategies according to their preferences.
Unlike other protocols that rely on automated market makers (AMMs), Term Structure provides a market-driven, unified fixed-income market. Users can choose from eight mainstream collateral tokens for borrowing or lending, and select from a range of fixed tenures, interest rates, and amounts. Transactions are facilitated through auctions in the primary markets and order books in the secondary markets.
In the primary markets, borrowers and lenders can use liquid staking tokens (LSTs) and liquid restaking tokens (LRTs) to borrow and lend at fixed rates and terms. Borrowers receive the borrowed tokens and must repay their loans by the maturity date to retrieve their collateral, while lenders receive Term Structure fixed-income tokens that can be redeemed for principal plus interest at maturity. The secondary markets provide a platform for users to buy or sell fixed-income tokens.
At the core of these features is zkTrue-up, Term Structure’s customized zero-knowledge rollup technology. This technology ensures data availability, increases transaction speed, and allows users to place and cancel orders without incurring gas fees. Users can also initiate Forced Withdrawal on the zkTrue-up contract for fund withdrawal in case of censorship or any issues.
Prior to the mainnet launch, Term Structure achieved several significant milestones. It secured an initial funding of $4.45 million in seed fundraising rounds led by Cumberland DRW, and launched its testnet in November 2023. The protocol has seen 8,000 wallets interact with the testnet and facilitated over 2 million transactions. Rigorous audits by ABDK and HashCloak have also ensured the security of the smart contracts and ZK circuits.
Term Structure plans to introduce new features and tools, such as trading APIs, layer 2 swaps, and debt buy-back. It will also support other yield-bearing tokens as collateral, implement collateralized financing using real-world asset (RWA) tokens, and develop DeFi forwards and term futures.
Jerry Li, the co-founder of Term Structure, emphasizes the importance of blockchain technology in solving practical problems and moving beyond the initial hype. Term Structure aims to improve financial openness and democratize lending and borrowing, making blockchain technology as impactful as the internet. The protocol is designed to integrate with daily life and become indispensable to users worldwide.
By focusing on providing a fair and transparent trading environment, Term Structure aims to address significant challenges in DeFi, such as securing fixed costs of funds for effective risk management and financial planning. The integration of traditional finance elements with blockchain innovations marks a significant step towards the maturity and accessibility of the DeFi space.