Why Strips for IRS?

Strips Finance is the world’s first decentralized interest rate derivatives trading platform. Interest rate swaps (IRS) allow participants to swap variable interest rates for fixed interest rates. The IRS market is one of the most important pillars of finance. There are currently no great options to trade interest rates in decentralized finance, and Strips aims to solve this problem by building the first natively decentralized interest rate derivatives exchange on Ethereum. Strips will grow to be the premier marketplace for fixed income.

What are Interest Rate Swaps?

Interest rate swaps are an excellent way to exchange streams of interest payments with another party. The most common type is fixed for floating interest rate, which means you will get a stream in your hands at specific intervals. At the same time, the other one pays out what they were promised based on this index and amount called “principal.” It’s essential when it comes time to make sure we know all about these derivatives. This is because there may be more than meets the eye- like credit rating or loan quality implications.

Why DeFi Interest Rate Swaps?

Interest rate swaps are the largest traded OTC derivatives in traditional finance. A 2020 report by JP Morgan estimates the daily volume of OTC interest rate derivatives reached a staggering $6.5trn per day (yes, Trillion). Much of the volume of interest rates derivatives has been attributed to hedging and speculators. Interest rates derivatives have consistently maintained an 80% share of the global OTC financial derivatives market, with a notional outstanding of $435.2trn as of 2018 (JPM). By comparison, FX derivatives only account for 17% of notional outstanding.

How does IRS work?

Interest rate swap turns the interest on a variable-rate loan into a fixed cost. It does so by exchanging payments between borrower and lender. They will still pay for their monthly installment at any given time with “variable” rates and receive an additional charge based on terms decided while creating the contract. This ultimately makes them responsible for only paying one low price per year – no matter how high or low it goes throughout different periods within each calendar month.