Author: Castle Labs
Compiled by: Jiahua, ChainCatcher
Currently, the active loan amount in the lending track has reached $28.5 billion, with almost all demand coming from floating rate lending.
During stable market periods, this mechanism operates well. However, once a pressure event occurs, with changes in the utilization curve, borrowing rates may skyrocket. Rising rates will force some borrowers to exit the market or reduce leverage, thereby lowering the overall efficiency of the credit market.
In fact, DeFi money markets have addressed a problem that traditional credit has struggled to provide: allowing users to almost instantly collateralize loans.
However, one problem remains unsolved: before the loan matures, borrowers do not know how much debt cost they will ultimately incur.
Today, many products are developing around this point, pushing the market towards fixed rate and fixed term credit products. In such a market, lenders can earn fixed returns and know in advance how much return their deposits will generate; borrowers also clearly understand the financing costs they need to pay.
The demand in such markets mainly comes from three types of participants:
Term-matching borrowers: funds, treasury, RWA issuers, and basis/arbitrage trading teams. They need to align the debt maturity date with asset duration, redemption window, or strategy cycle.
Cost-conscious borrowers: cyclic borrowers, leveraged yield strategy users, and traders. They may not care about the exact maturity date but need stable borrowing costs to avoid squeezed spreads.
Lenders/fund managers: treasury, market makers, and capital allocators. They want to choose terms, collateral, and returns instead of passively accepting results produced by utilization rates.
Early fixed rate lending protocols primarily faced three challenges:
Liquidity fragmentation: fixed rate markets segment liquidity by maturity date, interest rate, collateral type, and duration, making it more challenging to match than a single floating rate liquidity pool.
Lack of early exit mechanisms: after a loan starts, without secondary liquidity, redemption paths, or other buyers, lenders often find it difficult to exit before maturity. This is usually not an issue in floating rate lending.
Cold start problem: lenders are unwilling to lock up funds for a long time without matching with a counterparty, yet are unable to earn any returns.
As institutional capital allocation increases and complex strategies like cyclic lending mature, the market users are also changing, leading to rising demand for fixed term markets.
One of the core issues of on-chain lending is the uncertainty brought about by floating rates. Fixed rate lending allows users to know their returns and financing costs at the start of a transaction while also providing a better user experience, as protocols must price directly for terms, collateral quality, exit liquidity, and refinancing risks.
This article will introduce design solutions adopted by matured protocols originally focused on floating rates, such as Morpho, Jupiter, and Kamino. Together, these three have a total of $6.83 billion in active loans and have recently begun to enter the fixed rate and fixed term markets.
Morpho Midnight and Tenor Finance
As a matured protocol in the floating rate lending field, Morpho launched Morpho Midnight in July 2026.
Midnight is a lending protocol based on intent, utilizing a zero-interest mechanism. Lenders and borrowers first express their trading intentions, with positions represented as debt units and credit units:
Debt units: each unit represents the obligation to repay 1 loan token before maturity.
Credit units: represent entitlement to the repaid loan tokens.
Midnight addresses some issues in fixed rate lending by allowing loan positions to be traded, providing institutions with flexibility in terms and more predictable credit conditions. The interest rates are determined by the prices of fixed term credit units and debt units traded by borrowers and lenders.
In Midnight, the "quotes" published by lenders and borrowers do not lock funds but merely express trading intentions: wishing to borrow or lend funds at specific prices, maturity dates, and collateral configurations in a specific market.
Funds are only transferred in during transaction settlement via a callback mechanism. This means that lenders need to contribute funds only after transactions are matched and executed, resolving the cold start problem and improving capital efficiency.
The Morpho team states:
“By allowing users to earn floating rates on protocols like Morpho Blue, the opportunity cost that users usually bear while waiting for quotes to match can be eliminated. This will increase users' willingness to publish quotes and enhance the overall liquidity available to users.”
Another issue faced by fixed rate markets is liquidity fragmentation, as independent markets may form for each maturity date, collateral type, and interest rate range.
Midnight does not immediately transfer funds when users express their intent; users can also post cross-market quotes:
“Since the same capital can be quoted in multiple markets simultaneously, the total liquidity that a single quote provider can offer is equal to: available funds × number of markets.”
Since its launch in July 2026, the active loan amount in the Midnight market has reached $3 million. While this number is still relatively small, the team expects it to change soon, as Midnight has inherited the existing network effects and ecosystem of Morpho.
For example, Morpho Vaults currently hold over $4 billion in funds. Once the vault adapter is released, these funds can start quoting on Morpho Midnight and play a significant role in building deep liquidity.
The most significant design aspect of Midnight is its solution to the early exit issue.
In early or illiquid fixed term markets, lenders and borrowers often find it challenging to exit before maturity. Midnight improves this by allowing positions to become interchangeable: lenders can sell credit units, while borrowers can purchase debt units, thus reducing outstanding debt.
If Midnight serves as the underlying architecture for fixed rate loans, an access layer has already emerged above it: Tenor Finance.
DeFi Frontier describes Tenor as “Midnight’s HIP-3.”
Tenor essentially inherits all of Morpho Midnight’s underlying functionalities while adding more product designs on this basis:
Automatic renewal and fallback mechanisms: Tenor introduces an automatic renewal feature to prevent positions from being liquidated after maturity. It utilizes an independent Keeper to roll over the loans to a new fixed rate term before maturity. If new fixed rate liquidity cannot be matched, the loan can roll back to Morpho Blue’s floating rate pool.
On-chain OTC protocols: Tenor allows users to request quotes and publish customized OTC trading quotes. These quotes can be shared with whitelisted counterparties, supporting direct negotiation between both parties.
Institutional tools and access control: Tenor provides role-based permission management for institutional accounts. Institutions can deploy customized credit markets with access restrictions and limit the participation eligibility of borrowers and lenders according to compliance or KYC requirements.
By increasing automatic renewal and fallback mechanisms, Tenor reduces the friction in managing the maturity of fixed term positions. As long as there is matching liquidity, or fallback conditions are met, positions can continue more smoothly.
Additionally, Tenor's customizability makes it more suitable for institutional use. The team expects that in the future, one side of the platform will connect asset management institutions, while the other side connects enterprises.
Jupiter Offerbook
The Offerbook of Jupiter Exchange entered public testing in June 2026, with a launch date close to the publication of the Morpho Midnight white paper.
The floating rate product Jupiter Lend launched last year by Jupiter marked its first entry into the lending field. Now, Offerbook is beginning to move into the fixed term market.
Offerbook is an intent-based lending protocol that does not use a price-based settlement mechanism, thus supporting fixed term lending for long-tail assets.
The loan terms on the platform are generally short, typically ranging from 1 to 30 days. When a loan matures, if the borrower has not repaid the loan, the lender can directly obtain the collateral, without triggering a liquidation.
This design enables NFTs, RWAs, and other assets lacking active price discovery to become collateral, as long as the lender is willing to directly assess and bear the risk of their collateral.
The uniqueness of this model lies in its use of collateral transfer upon maturity, replacing ongoing price liquidations, and helping to establish specialized markets that support assets that would otherwise be difficult to include in the lending system.
On Offerbook, users can express intentions to lend or borrow, which will be displayed within the application. The platform will only transfer liquidity once a quote is accepted.
Since users accept quotes only during transaction matching, funds can still be used elsewhere until the order is executed, thus addressing the cold start issue. Lenders and borrowers can also allow their funds to continue earning returns while waiting for trades that meet all conditions to be matched.
Since its launch, the active loan amount in Jupiter Offerbook has reached $450,000.
While this model is unique, verifying market demand and achieving scale is still challenging, as its scalability depends on whether lenders are willing to directly assess risks and engage in collateral.
Kamino
Kamino recently released the white paper for its fixed rate lending protocol.
Kamino did not build a separate fixed rate market but rather added a fixed rate reserve pool within Kamino Lend.
The advantage of this design lies in its distribution capability. Borrowers can see a clear term structure, and lenders can quote specific rates and terms without fully exiting the floating rate system, making fixed rate borrowing a supplement to the existing system.
Each reserve pool on the platform is defined by its interest rate and term. For example, users can borrow USDC at different interest rates and terms. All different combinations of interest rates and terms collectively form a grid.
Through this grid, Kamino allows borrowers and lenders to express at what prices and terms they want to transact.
Borrowers can post borrowing intentions, specifying collateral, borrowing amount, maximum interest rate, and term. Lenders can post conditional liquidity, stating at which interest rates, terms, and amounts they are willing to provide funds.
This grid serves as the execution layer for transactions. Borrowers can retrieve available fixed rate liquidity from pre-set interest rate and term combinations.
Unlike direct matching, lenders will quote within a structured grid, such as a 1-month rate of 4.5%, a 3-month rate of 5%, thus forming clear term structures and yield curves for different assets.
With Kamino's infrastructure, borrowers can either publish intentions and wait for liquidity matching or directly borrow from the available fixed rate liquidity within the grid.
Additionally, as long as liquidity allows, Kamino can automatically roll loans over to the next term, with mechanisms similar to Tenor. If fixed rate liquidity is not available, loans can roll back to floating rates. This design addresses the loan maturity issue and reduces the burden on borrowers to manually manage each maturity.
Regarding exits, lenders must exit through a Withdrawal Queue.
If funds have already been borrowed, lenders cannot immediately retrieve their funds, and they will enter a first-come-first-served queue to be repaid when the loans in that reserve mature.
This design ensures that the maximum waiting time for lenders is constrained by the reserve term and does not exceed the term of the corresponding reserve.
While parties are matched for transactions, funds do not remain idle but continue to earn returns from the floating rate reserves, alleviating the cold start issue.
Conclusion
Fixed rates will not eliminate the risks exposed by floating rate lending over the past years, but they will make debt costs clearly visible.
This is precisely what DeFi credit has been lacking.
The advantage of floating rate liquidity pools is that borrowers can occur instantly, but it also compresses all demand onto a single utilization curve.
Fixed rate markets allow borrowers to price term limits, enable lenders to choose term and collateral risks, allow capital managers to allocate funds across different maturity dates, and developers can package them into more predictable credit products.
We are also beginning to see early forms of predictable credit products. For example, Aave launched Stable Vaults in July.
This is significant because DeFi lending is constantly expanding, with application scenarios covering cyclic lending, basis strategies, treasury management, RWA-related assets, and consumer-oriented applications.
These users require not just liquidity, but also clear and fixed financing conditions.
We expect that competition in the fixed rate lending field will continue to intensify, with new types of solutions emerging to expand market scale.
Currently, the adoption rate of fixed rate lending remains low, with floating rate lending still dominating the market. However, the goal of these products is to enlarge the entire market, as they can serve many scenarios that existing DeFi lending cannot cover.
Furthermore, these products are also attempting to solve the problems faced by early protocols while having stronger distribution capabilities, as their corresponding floating rate lending products are relatively mature.
For instance, funds in the floating rate market can quote in the fixed rate market while continuing to earn returns and maintain capital efficiency.
As these products mature, many previously unachievable strategies may emerge in the market, creating a new growth flywheel in the lending space.
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