Three Major Lending Protocols Enter the Fixed-Rate Market with Unique Innovations

Original author: @castle_labs

AididiaoJP, Foresight News

Currently, the lending sector has an active loan volume of approximately $28.5 billion, with nearly all demand coming from floating-rate products. This model functions well during stable market conditions; however, during periods of stress, utilization rates rise, causing borrowing rates to spike sharply. Sudden increases in interest rates often force some borrowers to exit or deleverage, rendering the entire credit market inefficient.

DeFi money markets solve one thing traditional credit cannot: near-instant collateralized borrowing. But one issue remains unresolved—borrowers cannot know the cost of their debt until the loan ends.

This is precisely the direction many products are currently focusing on: transitioning to fixed-rate, fixed-term lending products. In such a market, lenders can lock in their returns in advance, while borrowers know exactly how much interest they will pay.

This market demand primarily comes from three types of entities:

• Maturity-matched borrowers: Funds, treasuries, RWA issuers, and basis/arbitrage trading desks that require debt maturity dates to align with asset maturity dates, redemption windows, or strategy cycles.
• Deterministic demand borrowers: revolving loan users, leveraged yield players, and traders who may not care about exact maturity dates but require stable borrowing costs to avoid margin compression.
• Lender / Curator: Custodians, market makers, and allocators who wish to independently select tenor, collateral, and returns, rather than passively accept the outcomes dictated by the utilization curve.

Early fixed-rate lending was primarily hindered by three issues:

Liquidity fragmentation. The fixed-rate market is divided into multiple markets based on maturity, interest rate, collateral, and term, making matching significantly more difficult than in a single floating-rate liquidity pool.

Early exit is not possible. Once a loan begins, lenders find it difficult to exit before maturity unless there is secondary liquidity, a redemption pathway, or an assignee. This is not an issue in the floating-rate market.

The cold start problem. Lenders are unwilling to lock up their funds and earn nothing while waiting for a counterparty to be matched.

As institutional capital increases and more sophisticated strategies such as circular lending emerge, the user base has evolved, driving rising demand for fixed-term markets. A major pain point in on-chain lending is the uncertainty of variable interest rates; fixed-rate products allow users to lock in returns and costs in advance. They also compel protocols to directly price terms, collateral quality, exit liquidity, and refinancing risk, resulting in an improved user experience.

This article reviews the approaches of several established floating-rate protocols, including Morpho, Jupiter, and Kamino. Together, these three protocols have $6.83 billion in active loans and have recently entered the fixed-rate and fixed-term market with the above concerns in mind.

As a longstanding floating-rate protocol, Morpho launched Morpho Midnight in July this year. This is an intent-based zero-coupon lending protocol: lenders and borrowers express their intentions, with positions represented as Debt Units (an obligation to repay one loan token per unit before maturity) and Credit Units (a claim on repaid loan tokens). Midnight enhances term flexibility and provides more predictable underwriting for institutions by enabling loans to be traded. Interest rates are determined by the prices at which borrowers and lenders trade fixed-term Credit Units and Debt Units.

In Midnight, lenders and borrowers post "quotes" without locking up funds—they simply express their intent to lend or borrow under specific market conditions, prices, maturity dates, and collateral configurations. Funds are only transferred upon settlement (matching), solving the cold start problem: lenders commit capital only after a match is made, improving capital efficiency. This also helps attract more liquidity. The Morpho team states: “Allowing users to continue earning floating rates on protocols like Morpho Blue eliminates the opportunity cost of waiting for a match, encouraging more users to post quotes and increasing overall available liquidity.”

Another issue in fixed-rate markets is capital fragmentation: each maturity, collateral type, and interest rate tier can become a separate market. Midnight does not lock up capital during the intent phase, and users can place orders across multiple markets. “The same capital can quote multiple markets simultaneously, so the total liquidity a single market maker can provide = available capital × number of markets.”

Since its launch in July 2026, the Midnight market has seen approximately $3 million in active loans. While the numbers are small, the team believes this will change soon, as Midnight can leverage Morpho’s existing network effects and ecosystem. For example, Morpho Vaults currently manage over $4 billion in assets. Once the vault adapter is live, these funds will be able to begin quoting on Midnight, playing a crucial role in deepening liquidity.

The most noteworthy aspect of Midnight is that it solves the problem of early exit. In early-stage or illiquid term markets, borrowers and lenders often lack avenues to exit before maturity. Midnight enables position substitutability: lenders can sell credit units, while borrowers can buy debt units to reduce their outstanding obligations.

Midnight can be viewed as the underlying architecture for fixed-rate loans, with an access layer being built on top by Tenor Finance—some refer to it as Midnight’s “HIP-3.”

Tenor Finance inherits the underlying capabilities of Midnight and adds new features:

Auto-renewal and fallback options. Tenor introduces auto-renewal to avoid liquidation after maturity by using independent Keepers to roll loans into new fixed-rate terms before expiration. If no fixed-rate counterparty is available, it can directly fallback to Morpho Blue’s variable-rate liquidity pool.

On-chain OTC protocol. Users can request quotes and broadcast customized OTC offers, which can be shared with whitelisted counterparties and allow direct negotiation.

Institutional tools and access control. Tenor provides institutional accounts with role-based permissions, enabling institutions to deploy customized, gated credit markets that restrict borrowing and lending based on compliance or KYC requirements.

Tenor reduces maturity friction through automatic rollovers and fallbacks, allowing fixed-term positions to extend more smoothly when matching liquidity is available or fallback conditions are met. Combined with customization options, it is better suited for institutional users. The team expects the platform to serve asset managers on one side and corporations on the other over the long term.

Jupiter Exchange's Offerbook entered public testing in June 2026, around the same time as the release of the Morpho Midnight whitepaper. Jupiter Lend, a floating-rate product launched by Jupiter last year, marked its first foray into the lending space; it now enters the fixed-term market through Offerbook.

Offerbook is an intent-based lending protocol featuring no price-based liquidations, enabling fixed-term lending for long-tail assets.

Loan terms on the platform are short, typically ranging from 1 to 30 days. Upon maturity, if the borrower fails to repay, the lender directly takes possession of the collateral without undergoing a liquidation. This design enables assets such as NFTs, RWA, or other assets lacking active price discovery to serve as collateral, provided the lender is willing to underwrite them. By replacing continuous price-based liquidations with a simple transfer of collateral at maturity, it creates specialized markets that traditional models struggle to support.

Users can post intentions to lend or borrow; these intentions appear in the app, but liquidity is only committed when an offer is accepted. Since users confirm only upon matching, their funds remain available for other uses until a trade is executed, helping to alleviate the cold start problem. Both lenders and borrowers can continue earning returns on their funds until they find a perfectly matched term.

Since its launch, Jupiter Offerbook has had approximately $450,000 in active loans. The model is unique, but proving market demand and achieving scale is challenging due to scalability constraints tied to whether lenders are willing to directly underwrite these collateral assets.

Kamino recently released a whitepaper on its fixed-rate lending protocol. Rather than creating a separate fixed-rate market, it has integrated fixed-rate reserves within Kamino Lend. The benefit lies in distribution: borrowers can directly view the term structure, while lenders can quote specific rates and terms without fully exiting the floating-rate system, making fixed-rate borrowing an incremental enhancement.

Each reserve on the platform is defined by an interest rate and term, such as USDC loans with varying terms and rates. These combinations of different rates and terms form a grid.

With the grid, Kamino enables borrowers and lenders to express their trading intentions across both price and time dimensions. Borrowers post their borrowing intent, specifying collateral, amount, maximum interest rate, and term; lenders post conditional liquidity, specifying the interest rate, term, and amount they are willing to provide. The grid serves as the execution layer: borrowers can draw from available fixed-rate liquidity options within predefined interest rate and term combinations.

Matching is not a one-to-one direct match; lenders quote on a structured grid, such as 4.5% for one month and 5% for three months, creating a visible term structure and yield curves across different assets. Leveraging Kamino’s existing infrastructure, borrowers can either place orders to wait for matching or directly draw from the fixed-rate liquidity already available on the grid. Additionally, Kamino can automatically roll loans into the next term when liquidity permits, similar to Tenor; if fixed-rate liquidity is unavailable, it reverts to floating rates. This alleviates maturity issues and reduces the burden on borrowers to manually manage each maturity date.

Lenders exiting must join the withdrawal queue. If funds have already been deployed and cannot be withdrawn immediately, lenders enter a first-in, first-out queue and are repaid gradually as loans within the reserve mature. The design ensures that the maximum waiting time for lenders does not exceed the reserve term.

During the matching process, funds are not idle and can still earn returns in the floating-rate reserve, which also helps address the cold start problem.

Fixed rates do not eliminate the risks exposed by variable-rate lending over the years, but they make borrowing costs transparent—and that’s exactly what DeFi credit has been missing.

The strength of variable-rate pools lies in their ability to provide instant borrowing, but they compress everything into a single utilization curve. In contrast, fixed-rate markets allow borrowers to price terms, lenders to select terms and collateral risk, curators to allocate across terms, and applications to package more predictable credit products. Aave has already launched Stable Vaults in July, marking the emergence of early forms of predictable credit products.

This is important because DeFi lending is scaling up. It now supports circular lending, basis strategies, vault management, RWA-backed assets, and applications for everyday users—users who seek not just liquidity, but clear, fixed financing terms.

Competition in this space is expected to intensify, with more new solutions emerging to expand fixed-rate lending. Current adoption remains low, as floating-rate lending still dominates the market—but the goal is to grow the overall pie, as these products can address many use cases currently unmet by existing DeFi lending.

They also aim to avoid the pitfalls of earlier similar protocols, while benefiting from a more mature distribution: the floating-rate side is already well-established. For example, funds in the floating-rate market can continue earning yields and maintaining efficiency while quoting rates in the fixed-rate market.

As products mature, strategies that were previously impossible will emerge, and the lending sector may also develop a new flywheel.