New DeFi Protocol ‘Term Finance’ Expands Towards New Liquidity Horizons

• In February, Term raised $2.5 million from a consortium of investors led by Electric Capital
• On April 12, Term announced it had successfully cleared its first testnet auction

Term Labs announced on April 12 it had successfully launched its first testnet auction, cleaning $22.4 million in USDC loans against ETH at 2.96% interest over a four-week term. 

“We were pleasantly surprised to see the auction clear within a few basis points of the current midpoint of Compound Finance’s bid / offer spread for USDC,” Term said in a tweet announcing the successful deployment of its testnet. It added that it came out just under Aave’s USDC borrow rate for overnight funding.

“This demonstrates the potential for live Term auctions to clear in the middle of rates available on existing DeFi protocols,” Term said in a follow-up tweet. 

DeFi Liquidity Protocols

DeFi liquidity protocols, also known as decentralized finance liquidity protocols, facilitate the exchange and provision of liquidity for digital assets in a decentralized and automated manner. 

While popular DeFi liquidity protocols like UniSwap and SushiSwap function as DeFi exchanges that facilitate token swaps. SIgnificantly, Term Finance hopes to change the market by adding an auction element that it hopes will increase liquidity by providing onrails for more institutional access to lending and borrowing in cryptocurrency. 

In February, Term Finance, co-founded by Billy Welch and Dion Chu, first introduced its novel solution for offering a noncustodial, scalable fixed-rate lending protocol. That function allowed users to access liquidity on fixed terms without compromising on fees, slippage, custody, or trust. Consequently, the team developed it after securing a $2.5 million dollar investment led by Electric Capital. 

Similar to how auctions work in traditional financial markets, Term’s protocol allows lenders to submit offers to lend and borrowers to submit bids to borrow. 

While Term Finance is built for the crypto ecosystem, the team has taken inspiration from the U.S. Treasury’s auction calendar to facilitate borrower-lender matching. 

Scaling DeFi

Via Term, lenders now have the flexibility to set their own rates, but also determine the amount they are willing to lend, and specify the duration of the auction. Similarly, borrowers have the freedom to define their borrowing requirements within the platform.

“We’ve been speaking to a lot of liquid token funds or DeFi funds that have excess stablecoins, that would be lenders in the protocol,” Welch told Decrypt last February. “Market makers as well, we expect them to be a user of the platform to fund yield opportunities, as well as basis trading in DeFi.”

According to Term, this has several advantages over existing automated market maker (AMM)-based fixed-rate liquidity solutions. AMM models are capital intensive and suffer from excessive slippage, which can hinder their scalability. 

After its successful testnet launch on April 12, Term Finance is now open for early access with its mainnet set to launch later this year.