Yield Curve (DeFi)
A comparison of interest rates or yields available across different lending terms or durations, showing how return expectations change the longer funds are committed.
A yield curve, in a DeFi lending context, plots the interest rates or yields available across different commitment durations — for example, comparing a variable-rate lending pool's current rate against the rate available through fixed-rate lending (see Kaavon's "Fixed-Rate Lending" glossary definition) products locking in funds for various future terms. This shows how expected return changes depending on how long a lender is willing to commit their funds.
In traditional finance, a yield curve's shape (whether longer-term rates sit above, below, or roughly level with shorter-term rates) is widely read as a signal about broader market expectations for future interest rates and economic conditions. DeFi yield curves are a newer, less mature analog, shaped heavily by each specific protocol's interest rate model (see Kaavon's "Interest Rate Model" glossary definition) and the particular supply-and-demand dynamics of its own lending markets, rather than reflecting a single, unified market-wide expectation the way a sovereign bond yield curve does in traditional finance.
Examples
- A DeFi yield curve showing meaningfully higher rates for longer fixed-rate commitments suggests the market expects variable rates to rise over that period.
- Unlike a traditional bond market's yield curve, a DeFi yield curve is shaped heavily by each individual protocol's own specific interest rate model and lending dynamics.