On Strips Decentralised Interest Rates Exchange (IRX)
Strips exchange allows users to trade, hedge and speculate with 10x leverage on yields in DeFi, perpetual funding rates, government bond yields etc. In order to do so, we introduced a new financial derivative called the Perpetual Interest Rate Swap.
How it works
At its core, Strips Exchange is a cash-settled interest rate derivatives exchange. Users deposit collateral on the platform in order to trade various interest rate markets. Users select the reference interest rate they would like to trade and can simply go long or short the interest rate. Pricing is automatically adjusted by the AMM, which is optimised for each pool based on backtested parameters.
Initially, users initially will be able to trade with up to 10x leverage, with the option to increase the max leverage on a governance vote.
As Strips Exchange grows, we plan to introduce new and fixed-income products to decentralized finance. Strips plans to include exotic interest rate derivatives in the future, including interest rate options and volatility markets.
Perpetual Interest Rate Swaps
Perpetual Interest Rate Swap allow traders and hedgers to trade interest rates with ease and very little capital. The Perpetual Interest Rate Swap is an innovative new product created by Strips.
Innovations of the perpetual interest rate swaps:
There is no expiry of the contracts
Naturally mimics the payoff of a traditional IRS
Each contract has a single market
Unlike traditional interest rate swaps in finance which have fixed terms, Strips perpetual interest rate swap trade in perpetuity. Users can open a trade without worrying about rolling over their position.
The floating rate is based on the reference pool/vault yield. For example, the floating rate for the Aave USDC lending market would be the Aave USDC lending yield. Floating rates are calculated per block.
The fixed rate is based on the market supply/demand. It indicates the market's expectation of future average floating rates.
To read more about perpetual interest rate swaps, refer to this guide.
Why trade interest rate swaps?
Traders can profit from interest rate directions using interest rate swaps. Strips offers the world's first interest rate swaps. Trading interest rate swaps is fast, cheap and flexible. Now you can participate regardless of experience.
Interest rates influence everything in DeFi. Interest rate swaps are also the biggest market in traditional finance.
Based on our historical data, interest rates can also be more volatile than Bitcoin. For example, when Bitcoin moves 10% interest rates may increase 300%! This creates opportunities for traders and arbitrageurs.
Capture arbitrage opportunities. Traders can arbitrage different interest rates across protocols. Or capture basis opportunities using interest rate swaps. Traders can also speculate on the interest rate spreads “swap spread” between different interest rate markets.
Use interest rate swaps to hedge. If you are a lender or borrower, it is easy and capital efficient to use interest rate swaps to hedge your yield or borrowing costs.