Final warning! The three major protocols in the $ETH ecosystem are collectively shifting, and the 240x leverage "institutional money printer" is about to launch. Retail investors, it's getting late if you don't start positioning!

If you have observed traditional finance, you will find that the daily trading volume of the interest rate swap market reaches up to $18 trillion. It is the cornerstone of real-world credit, centered on certainty. The on-chain world is now on the brink of replicating this history.

Currently, protocols like Aave, Morpho, Kamino, and Euler excel at serving lenders. They offer flexible access and permissionless environments. But borrowers, especially institutions, have been absent for a long time. The reason is simple: on-chain, only floating interest rates exist, while institutions need fixed costs to plan for the future.

This gap is becoming the ceiling for the growth of the entire $ETH ecosystem.

Look at what leading protocols are doing. Morpho, Kamino, Euler—these three protocols with a total locked value exceeding $10 billion—mention “fixed interest rate” or “predictable interest rate” 37 times in their 2026 roadmaps. This is the most frequent term, bar none. Followed closely by “institutions,” “real-world assets,” and “credit.”

The direction is clear, but the path needs to be chosen.

The early $ETH ecosystem was a playground for speculators, often called the “Mars casino.” No one cared about fixed rates; lenders needed the flexibility to withdraw at any time, while borrowers chased triple-digit annual yields. Meanwhile, frequent hacking attacks made large institutions hesitant—they preferred off-chain options like Celsius or Maple Finance.

The turning point came in the past year and a half. Pain points began to surface.

The first pain point is strategy failure. When people try to use fixed income tokens from protocols like Pendle for cyclical strategies, volatile borrowing rates easily eat into the expected 30%-50% annualized returns. This indicates that once private credit relying on certainty goes on-chain, fixed interest rates will become a necessity.

The second pain point is the huge premium disparity. Institutions are willing to pay high premiums for certainty. For example, the fixed rate off-chain at Maple Finance is about 8%, while the floating rate on Aave is only around 3.5%. This 180-400 basis point difference means institutions are paying a 60%-100% premium for “certainty.”

Meanwhile, the product foundation has been solidified. Morpho has become a major revenue source for Coinbase, and Aave is a core component for many protocol treasuries and stablecoin applications. Liquidity continues to flow in, but yields are compressed. Protocols must consider how to serve borrowers to balance this bilateral market.

A mature $ETH ecosystem’s solution lies in a “dual-layer structure of money markets + interest rate markets.”

The first path is peer-to-peer fixed interest rate matching. It’s straightforward: a fixed loan needs an equivalent fixed loan to match. But the problem is, retail investors need flexibility and lack risk assessment capabilities. This will eventually evolve into a fund pool operated by professional managers. However, when depositors withdraw en masse and funds are locked, liquidity crises will follow.

To address this, risk managers will enter the interest rate swap market for hedging, just like traditional banks. This leads to the second path, which is also the king of capital efficiency: an interest rate market based on existing money markets.

It doesn’t directly match lenders and borrowers but matches borrowers with capital willing to bear the “fixed vs. floating rate spread risk.” Its efficiency is astonishing. For example, locking in a $10 million, one-month loan at a 5% fixed rate requires only about $416,000 in capital to hedge the spread risk. This achieves a 240x inherent leverage.

Although theoretically there is a risk of forced liquidation for hedgers in extreme market conditions, such events have never occurred in Aave or Morpho’s three-year operational history. Multi-layer risk controls like margin requirements and insurance funds keep risks manageable.

This trade-off is highly attractive: borrowers can access funds from proven, highly liquid markets like Aave while enjoying 240 to 500 times higher capital efficiency than peer-to-peer models.

Looking ahead, interest rate markets will become as important as lending protocols. They will serve as a bridge connecting off-chain borrowing demand with on-chain lending supply, completing the last piece of the market puzzle.

When private credit and real-world assets are widely on-chain, interest rate markets will become the key pillar linking off-chain yields with on-chain capital. Moreover, the “lending and consumption” narrative will become a reality. Wealthy individuals, for tax avoidance, prefer to mortgage assets and borrow for consumption rather than sell directly.

In the future, asset issuers and exchanges will have incentives to issue credit cards allowing users to mortgage assets like $BTC and $ETH for borrowing and spending. Achieving a fully self-custodial process will require a decentralized interest rate market. Data shows that card services similar to EtherFi grew by 525% last year, with a peak daily transaction volume of $1.2 million.

Fixed interest rates are far from the only catalyst for growth; the money market also faces challenges like off-chain collateral oracles. But the window of opportunity is opening, and the catalyst for institutional capital inflow may be just around the corner.

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