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Introducing Term Vaults

Introducing Term Vaults

A New Era of Fixed-Rate Lending

Dion Chu
January 15, 2025

This is a guest post written by the Dion Chu the cofounder and CEO of Term Labs

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Fixed-rate lending has long been a cornerstone of financial stability, but managing it in decentralized finance (DeFi) often requires significant time and expertise.

Auctions, collateral monitoring, and reinvesting principal present challenges for those without the capacity to actively manage their positions. To address this, Term Finance introduces Term Vaults, a fully automated and professionally curated solution for accessing fixed-rate lending in DeFi.

What are Term Vaults?

Term Vaults automate the entire process of fixed-rate lending. With Term Vaults, participants can optimize fixed-rate yields from Term on a risk-adjusted basis without the need to monitor auctions and actively manage their holdings.

How Do Term Vaults Work

Term Vaults are powered by custom strategy logic built on top of Yearn V3 to automate and optimize portfolio rebalancing while adhering to strict portfolio risk management controls.

Term Vaults:

Participate in auctions to achieve target yields;
Reinvest proceeds from maturing loans to ensure consistent earning potential; and
Rebalance idle funds into floating rate lending protocols for maximum capital efficiency,

Subject to smart contract enforced portfolio constraints set via on-chain governance and proposed by Risk Curators that:

Restrict loans to those backed by a curated list of collateral types and LTVs;
Ensure diversification through concentration caps;
Preserve liquidity by maintaining minimum reserve ratios; and
Restrict portfolio duration to a maximum weighted average life cap.

Vaults operate transparently with every transaction verifiable on-chain. Any changes to portfolio constraints initiated by Risk Curators are subject to governance by vault LP token holders, ensuring that proposed changes align with depositor interests..

Who are the Risk Curators?

Risk Curators are a key part of the Term Strategy Vault ecosystem. They play an important governance role by exercising technical expertise in DeFi risk management to help protect users and optimize vault performance. They propose which collateral types should be allowed as backing against the loans within a strategy vault, evaluate risk parameters such as loan liquidation thresholds, and suggest portfolio risk parameter settings for the vaults that they curate.

Term Vaults launches with support from leading institutional partners in DeFi risk management and trading. These partners bring deep expertise in portfolio management, risk assessment, and market making to serve as the initial Risk Curators for Term Vaults:

August Digital
MEV
RE7
Shorewoods
UltraYield

These established firms combine traditional finance risk management experience with extensive DeFi market knowledge, positioning them well to help establish and maintain robust risk parameters for Term Vaults. Their participation as Risk Curators from launch helps ensure that Term Vaults begin operations with institutional-grade risk management frameworks in place.

The USDC Meta Vault

A closer look at the August Digital Vault made up of different fixed-term maturities and AAVE lending

The Importance of Term Vaults

Effortless Access to Fixed Rates

Term Vaults eliminate the complexities of auction participation and ongoing loan management, allowing participants to benefit from fixed-rate lending without operational overhead.

Optimized Returns

By automating the lending process and reinvesting proceeds, Term Vaults reduce inefficiencies and often outperform traditional floating-rate models.

Risk Management

Vaults are curated by a diverse set of experienced DeFi institutions, who propose portfolio control parameters tailored for a variety of risk profiles. This professional oversight means that you don’t have to follow a one-size-fits-all approach. You can find a strategy that strikes the right balance between risk and return that caters to you.

Scalability and Cost Efficiency

Pooled resources reduce transaction costs, such as gas fees, making Term Vaults accessible even for any size of deposit.

A New Standard in DeFi Fixed-Rate Lending

Term Vaults redefine how fixed-rate lending is accessed in decentralized finance, making it more efficient, optimized, scalable and personalized to each user’s needs. By automating the complexities of portfolio management and offering curated risk strategies, Term Vaults represent a significant step forward in the evolution of DeFi.

With Term Vaults now live, participants can explore a streamlined, automated way to benefit from fixed-rate lending, enabling a broader adoption of stable, predictable returns in the DeFi ecosystem.