Interest Exchange

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For Borrowers ​

You have variable-rate debt on a supported lending market. Interest Exchange lets you fix the rate for part or all of that debt without moving the lending position.

How It Works ​

  1. Connect the debt wallet. The Positions page discovers supported lending positions for the connected address.
  2. Request quotes. Choose an available maturity. The RFQ notional defaults to the debt size, and the service broadcasts a short auction to connected backers.
  3. Choose an executable quote. Quote ladders and acceptance views show only unexpired, unfilled, uncancelled quotes that still match their on-chain nonce.
  4. Review the opening cost. The app calls previewTakeQuote and shows the origination bond, protocol fee, required initial prepaid, optional extra prepaid, and maximum payment.
  5. Approve and fill. The loan-token allowance covers the selected maximum payment. The first fill also calls setOperator(QuoteMarket, true); this is a one-time pool permission until revoked. The app then calls QuoteMarket.takeQuote through Bundler3, optionally bundling extra prepaid.
  6. Manage the position. Add or remove prepaid, burn FRT to reduce or close the overlay, or request a rollover quote for another active series.

The FRT position is account-based state inside InterestRatePool; it is not a standalone ERC-20. A quote fixes exactly its signed notional, so the amount in the acceptance modal must match the executable quote.

Important Distinction ​

Opening FRT does not borrow or repay the underlying loan. It overlays the selected notional with fixed-rate settlement. Underlying collateral health and liquidation rules still belong to the lending protocol.

What Prepaid Means ​

Prepaid is the borrower funding the fixed-interest leg in advance. It is not an extra fee, and it does not mean paying all interest twice. Your lending-market debt continues to accrue its variable rate while Interest Exchange nets that floating interest against the fixed rate you selected:

  • when the fixed rate is above the variable rate, the difference is paid from prepaid;
  • when the variable rate is above the fixed rate, the overlay pays the difference back toward the borrower; and
  • unused prepaid remains coverage that can be withdrawn when the position has enough remaining protection or returned when the position is closed.

This follows the cash-flow structure of a traditional interest-rate swap. The debt principal is only the reference notional and does not change hands. Only the net fixed-versus-floating interest difference is settled over time.

Why This Matters More for Loopers ​

Assume 100 ETH of productive capital supports a 12x loop with 1,200 ETH of rate exposure. The strategy earns 2.7% on that exposure and owes 2% fixed interest on the same notional. Ignore compounding, fees, and changing rates for this illustration:

text
Annual loop yield:     1,200 ETH × 2.7% = 32.4 ETH
Annual fixed interest: 1,200 ETH × 2.0% = 24.0 ETH
Annual profit:                              8.4 ETH

A fair comparison keeps the 1,200 ETH position the same in both cases. If the entire 24 ETH fixed-interest bill must be funded before the loop begins, the borrower needs 124 ETH of total capital: 100 ETH remains productive and 24 ETH pays the fixed bill. The position produces 8.4 ETH of profit on 124 ETH committed, a 6.77% simple annual return.

If interest is paid as it accrues, only the 100 ETH of productive capital is needed at the start. The position earns 32.4 ETH and pays 24 ETH from its cash flow, producing the same 8.4 ETH profit on 100 ETH committed, an 8.40% simple annual return.

Fixed-interest timingCapital requiredLoop exposureAnnual profitReturn on committed capital
Entire year funded upfront124 ETH1,200 ETH8.4 ETH6.77%
Paid as interest accrues100 ETH1,200 ETH8.4 ETH8.40%

Paying from cash flow improves capital efficiency by about 1.63 percentage points in this 12x example. If the borrower has only 100 ETH total, requiring the fixed-interest bill upfront would force part of that capital out of the productive loop and reduce the exposure it can support.

Viewed monthly, the full position earns about 2.7 ETH and owes about 2 ETH, leaving roughly 0.7 ETH of profit. Over 12 months, that is approximately 8.4 ETH. Paying from the cash flow as it arrives preserves the productive capital instead of shrinking the loop before it starts.

Interest Exchange goes a step further than this gross-coupon example: it settles only the net difference between the fixed and variable legs over time. It does not collect the whole year's fixed interest when the position opens. Prepaid is a coverage balance securing borrower-side net payments, so the real capital cost depends on how much coverage is kept locked and for how long.

The app shows the actual prepaid requirement before acceptance. It depends on the quote, maturity, current settlement state, and selected coverage; the figures above explain the economics rather than predict that transaction value.

When Fixed Rates Make Sense ​

  • Rate volatility materially affects the position.
  • The debt will remain open long enough for rate certainty to matter.
  • A treasury needs predictable interest expense.
  • The borrower accepts the quote rate, opening costs, prepaid requirement, and cap risk shown before signing.

Interest Exchange Protocol