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Exactly is building an open source, non-custodial protocol on Ethereum, that will bring fixed-income solutions for lenders and borrowers.

Decentralized Finance (DeFi) is a new initiative based on blockchain technologies that aims to create a new financial system by creating a network of interconnected distributed apps (or dApps) that are open source and non-custodial protocols. By combining some of these dApps, not only we can recreate instruments of traditional finance, but also we can create new ones that were not possible before.

Exactly is building an open source, non-custodial protocol on Ethereum, that will bring fixed-income solutions for lenders and borrowers.

Exactly’s mission is to create a protocol that brings a missing important piece to the ecosystem: the “Time Value of Money”; that is, to be able to make a deposit/loan at a fixed rate for a certain amount of time, which is known in the traditional financial world as “fixed income”. This way, users will have an efficient way to hedge the interest rate volatility.

Some protocols approach this problem using a P2P strategy, where borrowers and lenders are being individually matched. This approach, while being conceptually simple, has a lot of inefficiencies due to both amount and time matching for each transaction. Systems like AAVE take a different direction, in which they can offer a stable (not fixed) rate if the market condition stays in a certain threshold of liquidity (Utilization Rate). While this helps have more predictability, it doesn’t eliminate the risk and it works only for some borrowers.

On the other hand, there is a series of protocols that were recently launched that use one token to create an element resembling a “Zero Coupon Bond” (Yield/Notional) and others that use two tokens (one for the principal and one for the interest) as if it were a “Coupon Stripping” (Element/Pendle) to try discover the fixed interest rate from the price of one or more assets with certain expiration date represented by one or two ERC-20 tokens.

This kind of protocols had not managed to capture enough liquidity yet (less than $1bn in TVL or less than 5% of the TVL of the money market protocols) because of its complexity to be implemented in the Ethereum blockchain and other smart contract architecture challenges. The key metric in this type of protocols is the stock of loans, so far the fixed income protocolos have borrow less than $0.4bn (2%) compared to over $18bn in the case of money market protocols.