The Ones in the Arena: Tempus Finance
“In Tempus, liquidity providers maintain exposure to the yield of the underlying asset (like stETH), while getting additional yield on top of that, and in turn enable fixed rate yield farming for others. We are here to make sure that fixed rate yield farming stays by providing proper market incentives to LPs” — David Garai, Đorđe Mijović, Co-Founders, Tempus
We’re seeing a lot of DeFi projects experimenting with different approaches to fixed-rate lending, in an attempt to lower the risks to lenders and thereby open up DeFi to more risk-averse individuals and institutions.
Fixed-rate lending hasn’t managed to gained too much traction, though. Why not? We invited Tempus’s co-founders, David Garai and Đorđe Mijović, to weigh in on this question, as well as on the problems they’re trying to solve, and how Tempus works.
What are you building, and what sets it apart from similar offerings in the space?
Tempus is a future yield tokenization and fixed rate protocol.
Most forms of yield farming return a variable rate of yield. This means that liquidity providers can be subject to unpredictable fluctuations in their returns.
Currently, there is no easy way to obtain a fixed yield or otherwise speculate on the returns in a capital-efficient way. This is where Tempus steps in, allowing users to perform two different use cases, each one offering a unique value proposition:
- Buy and sell interest rate protection using any supported Yield Bearing Token (such as stETH, cDai and others).
- Earn swap fees as a liquidity provider by depositing any supported Yield Bearing Token (thus earning additional yield on top of yield earned through other yield farming protocols).
What’s your vision for your project? What are you building towards in the longer view?
We want to be the leading fixed-rate lending/staking protocol in the entire DeFi ecosystem.
In your opinion, why hasn’t fixed-rate lending gotten traction in DeFi yet?
There are multiple reasons:
- First, we are still in the very early stages of DeFi, and more risk-averse investors tend to follow at later stages.
- Second, we haven’t seen good enough incentives for liquidity providers to enter the fixed-rate lending scene since the LP APY is too low and it’s hard to quantify the potential gains and boundaries of loss in vanilla fixed rate lending.
- Third, the UX for most DeFi projects is terrible.
What’s the most innovative idea in your protocol?
As the market displays high volatility and constant fluctuations, users should be able to take bets on where the rate of interest will go by re-allocating the risk between each other. Tempus splits a yield bearing token (like stETH) into two new primitives: Principals and Yields.
Principals are redeemable for face value at the Maturity Date, and Yields are redeemable for the amount of interest / yield that accrues on each Principal. In Tempus, users who think the interest rate will go down buy Principals, and those who think the interest rate will go up buy Yields.
Most DeFi protocols do not offer anything close to this — or offer such features that are highly capital inefficient. The risk-allocation mechanism is novel and resembles some features of trading futures on interest rate swaps in traditional finance. Our custom AMM (a tweaked version of StableSwap using dynamically scaling balances) is in the middle and is the backbone of our system.
In addition to that, our protocol has been designed in a way that not only helps lenders fix or leverage their interest rates, but also earn an additional yield on top of their existing yields generated by their yield-bearing tokens like stETH, cDai, etc. All they need to do is come and deposit their yield bearing tokens in the Tempus pool, and use the Principals and Yields minted to provide liquidity to the AMM. This is all made super simple for our users on the front-end.
It takes courage to undergo a public audit by a swarm of anonymous security researchers. It also says a lot about how much you prioritize security. What advice would you give to those on the fence?
Beside undergoing audits, both public and private, teams should spend some time performing formal verification processes and static analyses as part of their CI.
Also, having significant bug bounty pools can help a lot. We like the idea of having native tokens in bug bounty, so the bounty pool grows together with the protocol.
Security has become an increasingly vital topic in DeFi. How do you think the ecosystem needs to evolve in order to rise to the challenge?
Automated formal verification tools are not yet perfect, but with constant improvement, we will eventually reach a point where they will be easy to use. Currently all the tools need a little bit of manual input, or specific tool knowledge. We see a lot of room for improvement in this area.
What gets you most excited about DeFi?
The main role of DeFi is to maximize user benefit and remove any unwanted middlemen that would hinder your capital growth! Protocols built on DeFi have been able to replicate a suite of TradFi services while offering better features with higher efficiency.
Complete the following sentence: “I wish more DeFi projects would…”
Start.
What DeFi project name do you wish you’d thought of first?
WEN token. WEN token is a great name because everyone inadvertently shills it for free, almost every time they join any new Discord server.
What do you geek out about, beyond DeFi?
Deep learning and computer vision.
Learn more about Tempus:
- Website: tempus.finance
- Medium: medium.tempus.finance
- Discord: discord.tempus.finance
- Twitter: twitter.tempus.finance
- GitHub: github.tempus.finance
- Docs: docs.tempus.finance
Tempus’s $50K security audit contest starts October 14, 2021, and runs for one week. Details at code4rena.com.
The Ones in the Arena spotlights emerging and established DeFi projects and their founders, with an eye to celebrating and learning from them. The series’ name is inspired in part by Teddy Roosevelt’s famous quote, which has a central place in Code4rena’s philosophy.
