Three Major Lending Protocols Enter Fixed Rate Market: What Innovations Do They Bring?

$28.5 billion in on-chain lending is almost entirely at floating rates, with soaring rates during pressure periods forcing borrowers to liquidate.

Written by: @castle_labs

Compiled by: AididiaoJP, Foresight News

Currently, the lending sector is active with a loan scale of about $28.5 billion, with almost all demand coming from floating rate products. This model operates normally during stable market conditions; however, once it enters a pressure period, the utilization curve shifts upwards, causing borrowing rates to spike sharply. The sudden rise in rates often forces some borrowers to exit or deleverage, making the entire credit market inefficient.

DeFi money markets have solved one problem that traditional credit cannot: near-instant collateralized loans. However, there is still one issue unresolved—borrowers cannot know the cost of their debt until the loan ends.

This is precisely the direction many products are currently tackling: shifting towards fixed-rate, fixed-term credit products. In such a market, lenders can lock in returns in advance, and borrowers know exactly how much interest they will pay.

The demand for such markets mainly comes from three types of entities:

• Term-matching borrowers: Funds, treasuries, RWA issuers, basis/arbitrage trading desks that need the debt maturity date to align with asset maturity dates, redemption windows, or strategy cycles.
• Certain demand borrowers: Users of revolving loans, leveraged yield players, and traders who may not care about exact maturity dates but need stable borrowing costs to avoid margin compression.
• Lenders/curators: Treasuries, market makers, and allocators who wish to choose their own terms, collateral, and returns rather than passively accept the results dictated by the utilization curve.

Early fixed-rate lending faced three main issues:

Liquidity fragmentation. Fixed-rate markets can be divided into multiple markets based on maturity dates, interest rates, collateral types, and terms, making matching significantly more difficult than a single floating rate liquidity pool.

Inability to exit early. Once a loan begins, it is difficult for lenders to exit before maturity unless there is secondary liquidity, redemption channels, or a buyer. Floating rate markets do not have this issue.

Cold start problem. Lenders are reluctant to lock up funds, leaving them idle until matched with a counterparty, resulting in no returns.

As institutional funds increase and more complex strategies like revolving loans emerge, the user structure has changed, and demand for fixed-term markets is rising. One major pain point of on-chain lending is the uncertainty of floating rates; fixed-rate products allow users to lock in returns and costs in advance. This also forces protocols to directly price terms, collateral quality, exit liquidity, and refinancing risks, leading to a better user experience.

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

Morpho Midnight and Tenor Finance

Morpho, as an established floating rate protocol, launched Morpho Midnight in July this year. This is an intent-based zero-interest lending protocol: lenders and borrowers express their intentions, with positions represented as debt units (the obligation to repay one loan token per unit before maturity) and credit units (the right to claim repaid loan tokens). Midnight provides flexibility in terms and more predictable underwriting for institutions by allowing loans to be traded. The interest rate is determined by the prices of fixed-term credit units and debt units traded by borrowers and lenders.

In Midnight, lenders and borrowers post "quotes" that do not lock up funds but merely express their intention to lend or borrow under specific market conditions, prices, maturity dates, and collateral configurations. Funds only come into play during settlement (callbacks), thus solving the cold start problem—lenders only invest funds after a match is made, enhancing capital efficiency. This also helps attract more liquidity. The Morpho team stated: "Allowing users to continue earning floating rates on protocols like Morpho Blue eliminates the opportunity cost of waiting for a match, thereby stimulating more orders and improving overall available liquidity."

Another issue in the fixed-rate market is liquidity fragmentation: each maturity date, collateral type, and interest rate range can become independent markets. Midnight does not occupy funds at the intent stage, allowing users to post orders across multiple markets. "The same funds can quote multiple markets simultaneously, and the total liquidity a single market maker can provide = available funds × number of markets."

Since its launch in July 2026, the Midnight market has seen about $3 million in active loans. Although the number is small, the team believes it will change soon, as it can inherit the existing network effects and ecosystem of Morpho. For example, Morpho Vaults currently manage over $4 billion in funds. Once the treasury adapter goes live, these funds can start quoting on Midnight, playing a crucial role in deepening liquidity.

The most noteworthy aspect of Midnight is that it solves the early exit problem. In early or less liquid fixed-term markets, borrowers and lenders often lack exit channels before maturity. Midnight allows positions to be interchangeable: lenders can sell credit units, and borrowers can buy debt units to reduce their outstanding obligations.

Midnight can be seen as the underlying architecture for fixed-rate loans, with layers already being built on top—Tenor Finance. Some refer to it as Midnight's "HIP-3."

Tenor Finance inherits Midnight's underlying capabilities while adding new features:

Automatic rollover and fallback options. Tenor introduces automatic rollover to avoid liquidation after maturity. It rolls loans into new fixed-rate terms before maturity through independent Keepers. If a fixed-rate counterparty cannot be found, it can directly fallback to the floating rate liquidity pool of Morpho Blue.

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

Institutional tools and access control. Tenor provides institutional accounts with role permissions. Institutions can use these accounts to deploy customized, threshold-based credit markets, restricting who can borrow and lend according to compliance or KYC requirements.

Tenor reduces friction at maturity through automatic rollover and fallback, allowing fixed-term positions to continue smoothly when matching liquidity is available or fallback conditions are met. Coupled with customizability, it is more suitable for institutions. The team anticipates that the platform will serve asset managers on one end and enterprises on the other.

Jupiter Offerbook

Jupiter Exchange's Offerbook entered public testing in June 2026, around the same time as the release of the Morpho Midnight white paper. Jupiter's floating rate product, Jupiter Lend, launched last year as its first attempt to enter the lending sector; now it is entering the fixed-term market through Offerbook.

Offerbook is an intent-based lending protocol characterized by the absence of price-based liquidation, thus supporting fixed-term lending for long-tail assets.

Loans on the platform have shorter terms, typically ranging from 1 to 30 days. If a borrower fails to repay after maturity, the lender directly takes the collateral without liquidation. This design allows NFTs, RWAs, or other assets lacking active price discovery to serve as collateral, provided the lender is willing to underwrite. It uses collateral transfer after maturity to replace ongoing price liquidation, thereby creating specialized markets that traditional models struggle to support.

Users can post loan or borrowing intentions, which will appear in the application, and liquidity only comes into play when the quote is accepted. Since users only confirm when a match occurs, funds can still be used elsewhere before the transaction, alleviating the cold start problem. Lenders and borrowers can continue to earn returns on their funds until fully matching terms are found.

Since its launch, Jupiter Offerbook has seen about $450,000 in active loans. The model is unique, but proving the market and scaling it is not easy, as scalability is limited by whether lenders are willing to underwrite these collaterals directly.

Kamino

Kamino recently released a white paper for its fixed-rate lending protocol. It does not create a separate fixed-rate market but adds fixed-rate reserves within Kamino Lend. The benefit is distribution: borrowers can directly see the term structure, lenders can quote specific rates and terms without completely exiting the floating rate system, making fixed-rate borrowing incremental.

Each reserve on the platform is defined by interest rates and terms, such as borrowing USDC at different rates and terms. These different rates and term combinations form a grid.

With the grid, Kamino allows borrowers and lenders to express trading intentions simultaneously across both price and time dimensions. Borrowers post borrowing intentions, specifying collateral, scale, maximum interest rate, and term; lenders post conditional liquidity, specifying the rates, terms, and amounts they are willing to provide. The grid becomes the execution surface: borrowers can withdraw from the available fixed-rate liquidity based on preset rate and term combinations.

Matching is not a direct one-to-one match; lenders quote on a structured grid, such as 4.5% for 1 month, 5% for 3 months, etc., thus forming a visible term structure and yield curves for different assets. Leveraging Kamino's existing infrastructure, borrowers can either post intentions and wait for matches or directly withdraw from the existing fixed-rate liquidity in the grid. Additionally, Kamino can automatically roll loans into the next term when liquidity allows, similar to Tenor; if no fixed-rate liquidity is available, it falls back to floating rates. This alleviates maturity issues and reduces the burden on borrowers to manually manage each maturity date.

Lenders must go through a withdrawal queue to exit. If funds have already been deployed and cannot be exited immediately, lenders enter a first-come, first-served queue, gradually receiving repayment as loans in that reserve mature. The design ensures that the maximum waiting time for lenders does not exceed the term of that reserve.

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

Conclusion

Fixed rates do not eliminate the risks that floating rate lending has exposed over the years, but they clarify the cost of debt. This is precisely what DeFi credit has been lacking.

The strength of floating rate liquidity pools lies in their ability to provide loans instantly, but they compress everything into a single utilization curve. Fixed-rate markets allow borrowers to price terms, lenders to choose term and collateral risks, 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 expanding. It now supports revolving loans, basis strategies, treasury management, RWA-linked assets, and applications aimed at ordinary users. These users seek not only liquidity but also clear and fixed financing terms.

Competition in this sector is expected to intensify, with more new solutions emerging to scale fixed-rate lending. Current penetration remains low, with floating rates still dominating the market, but the goal is to grow the pie—these products can cover many scenarios that existing DeFi lending cannot.

They also attempt to address the pitfalls encountered by early similar protocols while having stronger distribution: the floating rate side has already matured. For example, funds in the floating rate market can continue to earn returns and maintain efficiency while quoting in the fixed rate market.

As products mature, some strategies that were previously impossible may emerge, and the lending sector may form a new flywheel.