Crypto glossary
Variable vs fixed interest rates
In DeFi, a variable rate floats with pool demand block by block, while a fixed rate locks the cost or yield until maturity through dedicated protocols.
Most crypto lending runs on variable rates. On Aave or Compound, the interest a borrower pays and a depositor earns moves continuously with utilization, so a stablecoin loan that costs 4% a year today can cost 15% next week. Fixed rates require extra machinery: fixed-term lending protocols, interest rate swaps or yield tokenization, where buying a principal token at a discount locks in a known return at maturity.
The distinction matters for anyone planning a leveraged strategy or treasury budget. Variable rates are flexible and let users exit at any time, but they make costs unpredictable. Fixed rates give certainty, which institutions and DAOs value, and the gap between both reveals what the market expects about future demand for borrowing.
Fixed-rate markets in DeFi are usually thinner, so exiting before maturity may mean selling at a worse price. Advertised variable yields are snapshots, not guarantees, and can be inflated by temporary incentive tokens that disappear when a campaign ends.
Example
A DAO that needs predictable costs buys principal tokens of a yield-bearing stablecoin maturing in six months, locking in about 7%, instead of depositing in a pool whose variable yield might fall to 3%.