Term Structure has officially launched its mainnet, aiming to revolutionize risk and liquidity management in the field of decentralized finance (DeFi). The concept of banking dates back to 1472 in Italy, when the first bank was established to facilitate trade, secure deposits, and provide loans. These early banking activities laid the foundation for more complex fixed-income instruments. The fixed-income market saw significant growth in the 17th century with the issuance of government bonds by the Bank of England to fund military conflicts.
Throughout history, the fixed-income market expanded further with the introduction of corporate bonds during the Industrial Revolution. Fixed income has become a fundamental pillar of the global financial system, offering stable financing options for governments and corporations while providing investors with predictable returns.
However, despite the growing popularity of DeFi in 2020, there is still a lack of fixed-income markets in this sector. Term Structure Protocol, a peer-to-peer fixed-income protocol, aims to fill this gap. This development represents a crucial step in integrating traditional finance mechanisms into the emerging field of DeFi, made possible 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 ZK-rollup, to ensure data availability, eliminate gas fees for placing and canceling orders, and enable users to withdraw their assets without permission.
One of the main challenges for DeFi to achieve exponential growth from a traditional finance perspective is the difficulty in securing a fixed cost of funds. This is essential 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, similar to sophisticated trading platforms like dYdX v3. This setup 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) for different tokens, Term Structure offers a market-driven, unified fixed-income market where users can choose from eight mainstream collateral tokens for borrowing or lending. Users can select from various fixed tenures, specify their preferred interest rates and amounts, and engage in transactions 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, respectively. Borrowers receive the borrowed tokens and must repay their loans by the maturity date to retrieve their collateral. Lenders, on the other hand, receive Term Structure fixed-income tokens, which can be redeemed for principal plus interest at the time of maturity. The secondary markets provide a platform for users to buy or sell fixed-income tokens.
To support these features, Term Structure utilizes zkTrue-up, a customized zero-knowledge (ZK) rollup technology that ensures data availability, increases transaction speed, and eliminates gas fees for placing and canceling orders. Users can also initiate Forced Withdrawal on the zkTrue-up contract for fund withdrawal in case of censorship or any issues. If a withdrawal request fails to process, users can activate the Evacuation Mode and perform an evacuation on the layer 1 contract to secure their assets.
Prior to the mainnet launch, Term Structure achieved significant milestones. It secured $4.45 million in initial funding through seed fundraising rounds, with participation from prominent firms such as Cumberland DRW, Decima Fund, HashKey Capital, Longling Capital, and MZ Web3 Fund. The protocol also launched its testnet, which saw interactions from 8,000 wallets and over 2 million transactions. Rigorous audits by ABDK and HashCloak ensured the security of the smart contracts and ZK circuits.
Looking ahead, Term Structure plans to introduce new features and tools, including trading application programming interfaces (APIs), layer 2 swaps, roll to Aave, debt buy-back, support for other yield-bearing tokens as collateral, real-world asset (RWA) tokens collateralized financing, and the development of DeFi forwards and term futures.
Jerry Li, the co-founder of Term Structure, emphasizes the importance of moving beyond the initial hype surrounding blockchain technology and focusing on its practical applications. Term Structure aims to improve financial openness and democratize lending and borrowing, making blockchain technology as impactful as the internet. The protocol strives to become an essential part of users’ daily lives by providing fair and transparent trading environments and addressing 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 represents a significant step toward maturing the DeFi space and making it more accessible and reliable for users.