An overview of Interest Rate Swap projects
What is an IRS?
An interest rate swap (IRS) is a forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount. IRSs usually involve the exchange of a fixed interest rate for a floating rate or vice versa to reduce or increase exposure to fluctuations in interest rates or to obtain a marginally lower interest rate than would have been possible without the swap.
In other words, an IRS is a special insurance contract that pays out the difference between the promised fixed rate and the effective rate at the time of maturity.
When to Use an IRS
Sometimes, bare theory is not enough to see the full range of benefits of this awesome trading instrument. Let’s have a look at a practical case:
You have a deposit on the Сompound . As you know, the Compound deposits have a floating rate. You see the offer of an 8% fixed rate on the Compound deposit, and you would like to take advantage of that offer. You specify the nominal and the maturity you are interested in — let’s say you specify the nominal of your deposit as 50 Dai and maturity you are interested in locking your rate in for is four months. After four months, if the effective rate that you receive on your compound deposit is only 5%, then you get the remaining 3% from the IRS. If by the end of the four months the effective compound rate on your deposit is 10%, you pay 2% to the IRS, ending up with 8% in either case.
An IRS can be used by anyone who wants to hedge his or her risks or bet on the price. Using our platforms for this process smooths the user experience because users only need to choose a price and a maturity. Everything else will be taken care of by smart contracts.
The Interest Rate Projects Alliance: Projects United
At Devcon 5 in Osaka, Japan, IRS project teams decided to set up an alliance. It currently consists of three projects: swap.rate by Opium Team; LSDai by Yellow Hat DAO, Decentral.ee, and Cryptobuilders; and Cherry Swap by Chris Maree, Sabine Bertram, Haythem Sellami, Chris Fulford, Liesl Eichholz.
We have teamed up with our like-minded colleagues because we all want to share liquidity and build a truly decentralised swap curve that represents market expectation for the variable rates over one, two, or even 12 months.
A swap curve is a unique fundamental instrument that is the basis of all the other fixed-income instruments. After variable rates, the next step is to acquire fixed rates for financial market maturities, which will allow many new projects and products to be built on top of the fixed rates. If we can make it stable, everyone in the community benefits.
The Alliance is open to all IRS project developers who share our values and vision. Contact us at Opium Team or LSDai.
Who We Are and Why We Are Here
DeFi observes the stabilisation of floating rates, and the DeFi ecosystem is ready for further development. That’s why we at Opium Team are ready to introduce the live swap curve. Users can go directly into IRSs that complement their deposits or loans or enter the market by betting on the rate going up or down.
swap.rate is a dib.one-based product with a user-friendly and easy-to-navigate interface, but under this simple surface, there’s a powerful and highly advanced dib.one mechanism that caters to users’ needs in the best way possible. The idea for swap.rate came after we started receiving our users’ feedback. Our users are all unique — they have different life experiences, ages, genders, and backgrounds — but they were all certain about what they wanted to see. They wanted something simple to use and pleasant to look at.
Now Swap Rate is mainly focused on Compound as it’s most active and liquid platform at the time. So there are several products for user to choose from: Compound supply and borrowing rate DAI (MCD), USDC and SAI. Also user can easily swap their existing positions on Compound in the “Deposits/Loans” section. They only need to specify the nominal and maturity date and sign the meta transaction. After the maturity the amount you get will be automatically deposit on your account.
Swap.rate is built on Opium Protocol that is being audited right now and code will be open-sourced right after it. So everyone will be able to check it and see that it’s fully transparent.
More information you can read in an article about swap rate.
You can check it out at https://swaprate.finance.
LSDai combines rDAI and market protocols so that you can earn interest on the compound while hedging against its volatility. LSDai is an IRS built on market protocol derivatives and compounds’ cDAI, the first one created at ETHBerlin. LSDai creates a Euro-Dollar like construct that is a future on the compound Dai lending rate throughout the contract. This construct is implemented by leveraging market protocols, which take on the approach of constructing index futures via an iron-cross-options approach. LSDai decouples the risk of the two sides via long and short position tokens. (taken from bzx article).
More technical information you can read here https://github.com/lsdefi
You can try it at lsdai.market.
LSDai is the collective work of Yellow Hat DAO, Decentral.ee, and Cryptobuilders.
Cherry Swap is the winner of ETHBerlin. Cherry Swap is an autonomous, open-source platform for IRSs on compound markets. It offers a crypto-flavoured version of traditional swaps, which are usually done to hedge exposure to floating interest rates. The Cherry Swap team has created a new type of derivative based on pooling these IRSs, allowing users to hedge against or speculate on interest rate fluctuations.
Users can either secure a fixed rate to borrow or lend against or speculate on changing interest rates in the DeFi lending market. Cherry swap implements a custom version of a traditional interest rate swap, hence the name, which comes from interest rate swaps with a cherry on top.
Any interest accrued while funds are locked up in compound is pooled and returned to participants at the end of the lock-up. Participants who predicted the correct trend in interest rates will earn more than they would have if they had invested directly in the compound finance market, subsidised by those who predicted against the correct trend. (taken from twitter)
The more precise description you can read here https://github.com/NeapolitanSwaps/CherrySwap
One more IRS project is now being developed by a member of our IRS Alliance, Teddy Woodward. This is an RFQ platform for cDai IRSs. Teddy is a real professional with a rich trading background, and everyone is sure that he will introduce something great. While the name of the project is still unknown, we all are super curious to find out!
