Decentralized finance protocol Swivel Finance has come one step closer to bringing derivatives to DeFi with the closure of a million-dollar seed round.
Swivel Finance, formerly known as DeFiHedge, has announced that it has closed a $1.15 million seed round led by Multicoin Capital. The decentralized protocol for fixed-rate lending and interest-rate derivatives can now accelerate development to launch on mainnet.
The announcement added that the investment round included participation from industry leaders Electric Capital, CMS Holdings, Divergence Ventures, and Defiance Capital.
Interest Rate Derivatives Coming to DeFi
When it launches, Swivel v1 will facilitate trustless interest-rate swaps, allowing careful lenders to lock in guaranteed yields, and risk-takers to leverage their rate exposure. Swivel leverages other DeFi protocols such as Aave and Compound to access liquidity and lending markets.
The announcement added that it has seen a demand for fixed-rate lending in the DeFi industry. Interest rate derivatives will be offered to provide earning potential on assets dependent on lending and borrowing interest rates. Its floating swap feature allows users to swap interest on fixed-rate loans with users that have floating-rate loans.
Multicoin Capital managing partner Kyle Samani stated;
“Interest-rate derivatives are the most liquid financial product on the planet: they trade over $6.5 trillion per day. Swivel unlocks this market and brings these concepts to crypto.”
He added that Swivel introduces the simplest, most time and cost-efficient process witnessed to date, and radically reduces smart contract risk by “pushing it lower down the stack to trusted and tested primitives”
With traditional banks offering zero or negative interest rates, a new wave of investors simply wanting to earn interest on their stablecoins is emerging. There are plenty of riskier options in the ecosystem, but also room for more cautious investors.
Fixed Rate Lending
Swivel is not the only DeFi protocol to offer a more stable way of investing in the emerging financial ecosystem. In October, Yield Protocol went live offering fixed-term and fixed-interest rate loans to the industry.
The industry standard, before it collapsed in March, was the Dai Savings Rate (DSR). The DSR offered upwards of 8% on DAI stablecoin holdings at the time. The ‘Black Thursday’ event ended that for MakerDAO and the DSR has been zero ever since.