Historical Perspective of Stable Yield Decentralized Finance: A Background Overview

In the ever-evolving world of cryptocurrency and blockchain technology, the decentralized finance (DeFi) sector has been making significant strides in replicating traditional financial practices. One such development is the emergence of fixed-rate products, a sophisticated re-engineering of established financial engineering principles from traditional finance (TradFi).

The journey began in 2020, with 88mph launching the initial version of its platform, enabling users to lend crypto assets at fixed interest rates or purchase floating-rate bonds. Around the same time, Notional Finance pioneered fixed-rate, fixed-term borrowing and lending on Ethereum with its "fCash" instrument. Meanwhile, Pendle's yield tokenization in DeFi decomposed yield-bearing assets into Principal Tokens (PT) and Yield Tokens (YT), borrowing from traditional finance practices.

The shift towards fixed-rate products signifies DeFi's maturation and moves it away from purely speculative "yield farming." This transition is essential to attract a broader, risk-averse investor base, including traditional financial institutions.

Another pioneering project was BarnBridge, which launched in September/October 2020, offering users either fixed or leveraged variable yields through its SMART Yield product. Saffron Finance, which focused on tokenizing on-chain collateral and offered customized risk/return profiles through its A, AA, and S tranches, also made its debut around the same time.

In 2021, Yield Protocol introduced fixed-rate, fixed-term borrowing and lending, using "fyTokens" (fixed yield tokens). DeFi protocols like Waterfall DeFi and Centrifuge offer "junior" and "senior" tranches, adopting a tiered risk structure similar to Collateralized Mortgage Obligations (CMOs) in TradFi.

The world's first cryptocurrency-denominated, blockchain-settled bond was issued by LuxDeco in collaboration with Nivaura, showcasing the potential for faster settlement and automated smart contract payments. The bond, a 15-month, £5 million, fixed-rate bond managed by HSBC and NatWest on HSBC Orion, a blockchain-based platform, was a significant milestone in the DeFi sector.

The financial practice of "stripping" in traditional finance, which separates a bond's principal from its interest payments, creating new zero-coupon bonds, has also found its way into DeFi. Senior tranches in DeFi often provide fixed returns, offering a mechanism to hedge against interest rate volatility.

Despite these innovations, the early fixed-rate protocols struggled to gain significant traction and liquidity. Barnbridge achieved the highest TVL at $79 million and a market capitalization of $125 million, but it's clear that there's still room for growth.

In March 2025, the Inter-American Development Bank issued its first digital bond in pound sterling, marking another significant step forward for DeFi. The World Bank's "bond-i" in 2018 provided compelling evidence of Distributed Ledger Technology's utility for public bonds, laying the groundwork for today's digital assets.

Early conceptualizations of crypto bonds, such as DigiCash (1989) and E-Gold (1996), laid the foundation for the DeFi sector we see today. As the sector continues to evolve, it's exciting to see how fixed-rate products will shape the future of DeFi and its integration with traditional finance.

Historical Perspective of Stable Yield Decentralized Finance: A Background Overview