The history of the banking system can be traced back to Italy in 1472, when the world’s first bank was established to facilitate commerce, secure deposits, and provide loans. These early banking activities laid the foundation for the invention of more sophisticated fixed income instruments. The important development of the fixed income market began in the 17th century, when the Bank of England issued government bonds in 1693 to finance military conflicts. In the following centuries, the fixed income market continued to expand with the creation of corporate bonds during the Industrial Revolution. Through these developments, fixed income instruments have gradually become an important pillar of the global financial system. Not only does it provide a stable funding method for governments and companies, but it also provides predictable returns for investors.
However, despite the importance of fixed income markets in traditional finance (TradFi), they have been slow to emerge in the decentralized finance (DeFi) space since the DeFi Summer of 2020. Term Structure, a peer-to-peer fixed income protocol, aims to fill this gap in DeFi for many years. This development represents an important milestone in combining traditional financial mechanisms with DeFi.
The protocol provides fixed-term and fixed-rate lending in the primary market through an auction mechanism, while also allowing users to buy and sell fixed-income tokens in the secondary market through an order book mechanism. In addition, it uses an off-chain expansion solution, zkTrue-up, which is a customized zero-knowledge proof (ZK-rollup) system to maintain data availability, eliminate miner fees for placing or canceling orders, and allow users to withdraw funds without permission.
Addressing TradFi’s Challenges in DeFi
From a TradFi perspective, the main challenge for DeFi to achieve exponential growth is the difficulty in securing a fixed cost of funds, which is critical for those who want to earn higher floating annual percentage rates (APYs) through leverage or take advantage of token price appreciation. Term Structure effectively solves this problem by providing peer-to-peer lending with fixed interest rates and fixed terms. This setup enables users to effectively manage risk and choose a conservative or aggressive investment approach based on their investment strategy.
Unlike other protocols that use automated market makers (AMMs), Term Structure provides a market-driven, unified fixed income market and allows users to choose one of eight mainstream tokens as collateral for borrowing and lending. In the primary market, borrowers and lenders can use Liquidity Staking Tokens (LST) and Liquidity Re-staking Tokens (LRT) to borrow and lend at fixed rates and terms. When these orders are matched, borrowers will receive the borrowed tokens and must repay the loan before the maturity date to get the collateral back. Conversely, lenders will receive Term Structure fixed income tokens, which can be redeemed for principal and interest at maturity. At the same time, the secondary market provides users with a platform to buy or sell fixed income tokens.
Users can earn extra points and staking rewards by looping their LRT and LST on Term Structure. Source: Term Structure
Underlying these features is zkTrue-up — Term Structure’s custom zero-knowledge proof technology. It is used to maintain data availability, increase transaction speed, and allow users to place and cancel orders without paying miner fees.
In case of censorship or any issues, users can initiate a Forced Withdrawal on the zkTrue-up contract to withdraw their funds. If the contract cannot process the withdrawal request, users can use Evacuation Mode and perform an evacuation on the Layer 1 contract to ensure the safety of their assets.
zkTrue-up allows users to withdraw funds at any time, eliminates miner fees for placing and canceling orders, and enables fast transaction finality. Source: Term Structure
Important Milestones Before Mainnet Launch
Term Structure has achieved several important milestones before the mainnet launch. In several seed rounds in 2023, the protocol raised an initial funding of $4.45 million, led by Cumberland DRW, with participation from Decima Fund, HashKey Capital, Longling Capital, and MZ Web3 Fund. In addition, the protocol launched its testnet in November 2023. Since the testnet was opened, 8,000 wallets have interacted with the testnet and facilitated more than 2 million transactions. Rigorous audits by ABDK and HashCloak also ensured high security standards for smart contracts and ZK circuits. At the same time, the protocol has completed the trusted setup ceremony of its zero-knowledge proof system zkTrue-up with ABDK, HashCloak and Web3 software development company Bware Labs. The system ensures the security of zkTrue-up by discarding "toxic waste" (data that could trick the system into accepting false proofs), preventing anyone from taking control of it and eliminating the possibility of rug-pull.
The March 2024 testnet trading competition demonstrated the platform’s ability to process a large number of transactions in a short period of time. During the competition, 560 wallets participated and processed more than 314,000 transactions. This fully demonstrated that the protocol is well prepared for the mainnet launch.
The protocol also plans to introduce and develop new features and tools, such as trading API, Layer 2 Swap, roll to Aave, and debt buy-back. Term Structure will also support other yield tokens as collateral, support financing related to real-world assets (RWA), and develop DeFi forwards and interest rate term futures.
Using blockchain to solve real problems
Jerry Li, co-founder of Term Structure, stressed the need for the community to move beyond the hype surrounding blockchain technology and focus on its ability to solve real problems.
Term Structure’s mission is to increase financial openness and democratize lending, making blockchain technology as accessible and impactful as the Internet. Jerry firmly believes that blockchain will realize its full potential when it meets everyday financial needs. This philosophy is also reflected in Term Structure’s product design, which aims to make its products and services as integral to the daily lives of users around the world as digital financial services.
Term Structure is committed to providing a fair and transparent trading environment and solving major challenges in DeFi, such as ensuring a fixed cost of funds, which is essential for effective risk management and strategic financial planning. The emergence of this protocol not only marks an important step for DeFi to move towards maturity, but also combines traditional financial elements with blockchain innovation to make it more practical and reliable.
Visit the Term Structure website to learn more about the agreement.