It was only a matter of time before crypto adapted elements of the $341 trillion interest rate swap market to its own. Traders may now be able to hedge the risks they face from interest rate payment fluctuations in perpetual contracts. And it could also help those lending and borrowing in the decentralized finance (DeFi) space.
On June 9, the Singapore-based Delta Exchange launched interest rate swaps (IRS) – a contractual agreement between two parties to exchange interest rate payments over a set period of time.
Usually, an IRS involves the exchange of floating rate and fixed-rate obligations (the parties do not exchange the principal amount). A floating interest rate is the one that moves up and down with the reference rate.
In traditional finance, an interbank interest rate like often serves as a reference rate in a swap. Delta’s floating to fixed swaps using cryptocurrency exchange BitMEX’s bitcoin (XBT/USD) as the reference, which helps tether the price of the contract to spot price.