Overview | Tenor User Docs

In this doc, we introduce the design of the Tenor protocol, a set of smart contracts that facilitates the deployment of fixed rate lending and borrowing markets on top of pre-existing money markets in a layered approach. The Tenor architecture enables several key features:

Capital efficiency: Each fixed rate market supports a set of unopinionated onchain interest rate order books. Tenor order books are designed to allow users to trade interest rates similarly to how Uniswap enables users to trade prices. The protocol's order books natively support limit orders allowing users to express their interest rate preferences. Limit orders enable borrowers and lenders to set orders at specific interest rates, allowing them to secure their desired rates until maturity. Limit orders can enable peer-to-peer trades with no interest rate slippage, provided a sufficiently narrow interest rate spread. Limit orders also facilitate the bootstrapping of fixed-rate markets by allowing users to place limit orders even in the absence of pool liquidity. This reduces the market's dependence on liquidity providers, a historically challenging aspect limiting the growth of pool-based fixed-rate protocols. Additionally, pending lend limit orders continue to earn the money market variable interest rate until they are filled thereby minimizing the opportunity cost for lenders. Finally, positions and limit orders in any maturity can be used to collateralize debts in another maturity, provided they are within the same market. This offers market makers programmatic leverage allowing them to efficiently quote rates along the curve, maximizing liquidity for users and mitigating liquidity fragmentation.
Governance minimization: Tenor fixed rate markets inherit the risk parameters of the underlying money market (e.g., collateral assets, max LTVs, liquidation discounts, oracles) simplifying market listings for market curators and minimizing additional overhead. Fixed rate markets order books operate with unopinionated interest rate models, which depend solely on the tickSpacing and maxRate parameters specified during the market deployment. These unopinionated interest rate models enable lenders and borrowers to set limit orders at their preferred interest rates providing users with greater flexibility.
Composability: By listing fixed rate markets on top of pre-existing money markets, Tenor allows a pre-existing user base to opt-in to a fixed rate experience. The Tenor fixed rate AMM is also implemented using a custom Uniswap V4 NoOp hook. This enables users to lend (e.g., swap USDC for a USDC fixed rate zero coupon bond instrument) directly through Uniswap.
Simple UX: At maturity, fixed-rate positions can be rolled forward to a new maturity passively or will default to start accruing the money market variable rate. This process transitions fixed-rate positions back to the variable rate at maturity without the need for user intervention, simplifying the user experience. In addition to enabling fixed rate lending and borrowing, Tenor also natively supports order book based yield trading in a similar fashion to Pendle.
Embedded Maker and Taker fees: The protocol's structure imposes fees on liquidity "takers." For instance, a lender or borrower who draws from the pool pays a fee determined by the annualized interest rate of his trade. These fees result in spot lenders lending at slightly lower rates and spot borrowers borrowing at slightly higher rates. A portion of these fees is redistributed to "makers"- liquidity providers (LPs) who deposit liquidity in the pool- thereby incentivizing them to engage in market making strategies.

Last updated 4 months ago

Capital efficiency: Each fixed rate market supports a set of unopinionated onchain interest rate order books. Tenor order books are designed to allow users to trade interest rates similarly to how Uniswap enables users to trade prices. The protocol's order books natively support limit orders allowing users to express their interest rate preferences. Limit orders enable borrowers and lenders to set orders at specific interest rates, allowing them to secure their desired rates until maturity. Limit orders can enable peer-to-peer trades with no interest rate slippage, provided a sufficiently narrow interest rate spread. Limit orders also facilitate the bootstrapping of fixed-rate markets by allowing users to place limit orders even in the absence of pool liquidity. This reduces the market's dependence on liquidity providers, a historically challenging aspect limiting the growth of pool-based fixed-rate protocols. Additionally, pending lend limit orders continue to earn the money market variable interest rate until they are filled thereby minimizing the opportunity cost for lenders. Finally, positions and limit orders in any maturity can be used to collateralize debts in another maturity, provided they are within the same market. This offers market makers programmatic leverage allowing them to efficiently quote rates along the curve, maximizing liquidity for users and mitigating liquidity fragmentation.
Governance minimization: Tenor fixed rate markets inherit the risk parameters of the underlying money market (e.g., collateral assets, max LTVs, liquidation discounts, oracles) simplifying market listings for market curators and minimizing additional overhead. Fixed rate markets order books operate with unopinionated interest rate models, which depend solely on the tickSpacing and maxRate parameters specified during the market deployment. These unopinionated interest rate models enable lenders and borrowers to set limit orders at their preferred interest rates providing users with greater flexibility.
Composability: By listing fixed rate markets on top of pre-existing money markets, Tenor allows a pre-existing user base to opt-in to a fixed rate experience. The Tenor fixed rate AMM is also implemented using a custom Uniswap V4 NoOp hook. This enables users to lend (e.g., swap USDC for a USDC fixed rate zero coupon bond instrument) directly through Uniswap.
Simple UX: At maturity, fixed-rate positions can be rolled forward to a new maturity passively or will default to start accruing the money market variable rate. This process transitions fixed-rate positions back to the variable rate at maturity without the need for user intervention, simplifying the user experience. In addition to enabling fixed rate lending and borrowing, Tenor also natively supports order book based yield trading in a similar fashion to Pendle.
Embedded Maker and Taker fees: The protocol's structure imposes fees on liquidity "takers." For instance, a lender or borrower who draws from the pool pays a fee determined by the annualized interest rate of his trade. These fees result in spot lenders lending at slightly lower rates and spot borrowers borrowing at slightly higher rates. A portion of these fees is redistributed to "makers"- liquidity providers (LPs) who deposit liquidity in the pool- thereby incentivizing them to engage in market making strategies.

Last updated 4 months ago