The DeFi Drop: Fixed-Rate Lending and Auctions with Term Finance

In this episode of The DeFi Drop, Edward Ward speaks with Dion Chu, CEO of Term Finance, about how Term is reshaping DeFi lending with fixed-rate loans, auction-based matching, and governance that empowers users. They explore why fixed rates matter, how Term’s unique model works, and what’s next for the protocol.

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Fixed Rates and Predictability

Ed:Borrowers never pay above their maximum rate, and lenders never lend below their minimum. How does that work in practice?

Dion:Term works like other DeFi lending protocols in that loans are overcollateralized and secured by on-chain oracles. But unlike Aave or Morpho, we offer fixed rates for a fixed term. If a borrower fails to repay, their collateral is liquidated — ensuring lenders get repaid in full with interest. This certainty is what makes fixed-rate lending so powerful in DeFi.

Why Fixed Rates in DeFi?

Ed:Why build fixed-rate lending when most of DeFi is variable rate?

Dion:In DeFi, variable rates fluctuate wildly. Borrowers can see rates spike to 60% in a single day. That uncertainty makes it impossible to plan trades or treasury strategies. In traditional finance, fixed income is one of the largest markets — and about 60% of secured lending is term-based. My background as a fixed-income trader convinced me that DeFi needed the same predictability. That’s why Term exists.

Who Uses Term?

Ed:Which types of users benefit most from your model?

Dion:

Institutional DeFi users and carry traders love Term. On Aave or Morpho, spreads disappear as rates move around. On Term, they can lock in a spread — say borrowing at 8% while earning 10% — and know exactly what their return will be without constantly monitoring rates. It brings stability to strategies that depend on predictability.

Staking, Governance, and Token Value

Ed:You launched staking and governance earlier this year. How does that work?

Dion:

We forked Uniswap’s UniStaker model to create a link between protocol fundamentals and token value. Real yield (in USDC) is distributed to stakers over a rolling 30-day unlock period, so anyone staking during that time gets their pro rata share. Unlike protocols with multi-year lockups, Term keeps liquidity flexible — making it easier for funds and institutions to participate.

Governance is managed through an Aragon DAO. LPs can veto vault parameter changes like collateral whitelists, collateral ratios, reserve ratios, and concentration limits. This ensures transparency and alignment between vault curators and LPs.

Auctions as the Matching Engine

Ed:Why use auctions to match borrowers and lenders?

Dion:We borrowed from US Treasury bond auctions, which use sealed-bid, second-price auctions. Participants submit blind bids, which prevents rate shading and ensures true market discovery. Everyone who gets filled receives the same clearing rate, creating fairness and efficiency.

On top of that, we offer:

• An Earn page for secondary market lending opportunities.
• Strategy Vaults for fully automated, passive lending. This caters to both active and hands-off users.

Vaults and Partnerships

Ed:You have several curators — RE7, Clearstar, Shorewoods, K3. How do they shape vaults?

Dion:Curators manage vault parameters, but any changes go through governance. LPs with wrapped tokens can veto changes. This creates a balance of expertise and community oversight. Vaults are built on Yearn v3 smart contracts, chosen for their robustness and speed to market, while we focused on integrating Term’s unique features.

Improving DeFi UX

Ed:What’s next for Term?

Dion:We’re working on a router system that lets users batch multiple transactions — approvals, deposits, loops — into a single click. Today, these steps can take up to an hour; soon, they’ll take seconds. This will massively improve DeFi UX and allow more seamless integrations between Term and other protocols.

DeFi’s Future and the Prediction Ladder

Ed:We always close with a prediction. Today, DeFi TVL sits at $158B (per DeFiLlama). Where will it be at midnight on December 31, 2025?

Dion:I’d say a safe estimate is $200B. A lot of TVL is ETH-based, and with ETH appreciation plus growth in DeFi usage, that feels conservative but realistic.

Closing Thoughts

Ed:Dion, thanks for joining us and sharing your insights on Term. It’s exciting to see fixed-rate lending grow in DeFi.

Dion:Thanks for having me. Always great to connect with the community, and I look forward to coming back as we roll out new features.

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