Castle Labs says active loans across the lending sector stand at $28.5 billion, with almost all of that demand still concentrated in floating-rate borrowing.
That structure works in calm periods. Under stress, though, borrowing rates can jump quickly as utilization curves shift. Higher rates can force some borrowers to exit or reduce leverage, cutting into overall credit market efficiency.
DeFi money markets have already solved one problem that traditional credit often struggles to offer: users can borrow against collateral almost instantly. What remains unresolved is cost certainty. Before a loan matures, borrowers usually do not know the total debt cost they will end up paying.
That gap has pushed a growing group of products toward fixed-rate, fixed-term credit. In that setup, lenders can lock in a known return in advance, while borrowers know their financing cost from the start.
Castle Labs groups the main demand for these markets into three buckets:
- Borrowers that need maturity matching, including funds, treasuries, RWA issuers, and basis or arbitrage trading teams that want debt maturity to line up with asset duration, redemption windows, or strategy cycles.
- Borrowers that need cost certainty, including revolving borrowers, leveraged yield strategy users, and traders that may not care about an exact maturity date but do need stable borrowing costs so spreads are not compressed.
- Lenders and capital managers, including treasuries, market makers, and allocators that want to choose duration, collateral, and return themselves instead of passively accepting the outcome created by utilization.
Earlier fixed-rate lending protocols ran into three recurring problems:
- Liquidity fragmentation. Fixed-rate markets split liquidity by maturity, rate, collateral type, and term, making them harder to match than a single floating-rate pool.
- A lack of early exit routes. Once a loan starts, lenders often struggle to get out before maturity if there is no secondary liquidity, redemption path, or buyer on the other side.
- The cold-start problem. Lenders are reluctant to lock capital for long periods before a counterparty appears, especially if that capital earns nothing while it waits.
Castle Labs says demand for fixed-term markets is rising as institutional capital allocation grows and strategies such as revolving borrowing mature. One of the core issues in on-chain lending is the uncertainty created by floating rates. Fixed-rate lending makes returns and funding costs visible at the moment a trade begins, while forcing protocols to price term, collateral quality, exit liquidity, and refinancing risk directly.
The report focuses on Morpho, Jupiter, and Kamino, three established protocols that built their presence in floating-rate lending first. Together, they account for $6.83 billion in active loans and have recently started moving into fixed-rate and fixed-term markets.
Morpho Midnight and Tenor Finance
Morpho, already an established name in floating-rate lending, launched Morpho Midnight in July 2026.
Midnight is an intent-based lending protocol built around a zero-coupon structure. Lenders and borrowers first express trading intent, and positions are represented through debt units and credit units.
- Debt units represent the obligation to repay 1 loan token by maturity for each unit.
- Credit units represent a claim on the repaid loan token.
By making loan positions tradable, Midnight is designed to address part of the fixed-rate lending problem while giving institutions more maturity flexibility and more predictable credit conditions. Rates are set by the price at which borrowers and lenders trade fixed-term credit units and debt units.
On Midnight, quotes posted by lenders and borrowers do not lock capital. They only express an intention to borrow or lend in a given market at a given price, maturity, and collateral configuration. Funds are only pulled in through a callback mechanism when the trade is settled. That means lenders commit capital only after a match is found and executed, which tackles the cold-start problem and improves capital efficiency.
The Morpho team said: 「By allowing users to earn floating rates on protocols like Morpho Blue, we eliminate the opportunity cost users usually bear while waiting for quotes to match. This increases users’ willingness to post quotes and expands overall liquidity available to users.」
Liquidity fragmentation is another obstacle in fixed-rate markets because each maturity date, collateral type, and rate band can form a separate market. Midnight does not pull capital in when users post intent, and it also lets users post quotes across multiple markets.
The Morpho team said: 「Since the same capital can be quoted across several markets at once, the total liquidity a single quoter can provide equals: available capital × number of markets.」
Since going live in July 2026, Midnight has reached $3 million in active loans. Castle Labs notes that the number is still small, but says the team expects that to change quickly because Midnight inherits Morpho’s existing network effects and ecosystem.
Morpho Vaults currently hold more than $4 billion. Once a vault adapter is released, that capital could begin quoting on Morpho Midnight and help build deeper liquidity.
The part Castle Labs highlights most is Midnight’s approach to early exits. In early-stage or thin fixed-term markets, lenders and borrowers often have a hard time exiting before maturity. Midnight tries to improve that by making positions fungible: lenders can sell credit units, while borrowers can buy debt units to reduce unpaid obligations.
If Midnight is the base layer for fixed-rate lending, Castle Labs says an access layer has already emerged on top of it in the form of Tenor Finance. DeFi Frontier described Tenor as 「Midnight’s HIP-3」.
Tenor largely inherits Midnight’s base functionality and adds several product features:
- Auto-roll and fallback. Tenor introduces automatic rollovers to keep positions from being liquidated at maturity. Using an independent keeper, it rolls loans into a new fixed-rate tenor before expiration. If no new fixed-rate liquidity is matched, the loan can fall back to Morpho Blue’s floating-rate pool.
- On-chain OTC rails. Tenor lets users request quotes and publish customized OTC quotes that can be shared with whitelisted counterparties for direct negotiation.
- Institutional tooling and access control. Tenor offers role-based permissions for institutional accounts. Institutions can deploy customized credit markets with access restrictions and limit borrower or lender participation based on compliance or KYC requirements.
By adding auto-roll and fallback paths, Tenor reduces the operational friction of managing maturity for fixed-term positions. As long as matching liquidity exists, or fallback conditions are met, positions can continue more smoothly. Castle Labs also says the protocol’s customizability makes it a better fit for institutions. The team expects the platform to connect asset managers on one side and corporations on the other.
Jupiter Offerbook
Jupiter Exchange’s Offerbook entered public beta in June 2026, around the same time the Morpho Midnight white paper appeared.
Jupiter’s floating-rate product, Jupiter Lend, launched last year and marked its first move into lending. Offerbook now takes that push into fixed-term credit.
Offerbook is an intent-based lending protocol that does not use price-based liquidation, which allows it to support fixed-term borrowing against long-tail assets.
Loan tenors on the platform are short, usually between 1 and 30 days. If a borrower does not repay at maturity, the lender can take the collateral directly, with no liquidation event.
That design gives NFT, RWA, and other assets without active price discovery a path to serve as collateral, as long as lenders are willing to assess and bear that collateral risk themselves.
Castle Labs says the model stands out because it replaces continuous price liquidation with collateral transfer at maturity, helping create specialized markets for assets that were hard to bring into lending frameworks before.
Users on Offerbook can post lending or borrowing intent, and those intents are displayed in the app. Liquidity is only pulled in once a quote is accepted. Because users accept quotes only when a match is found, funds can remain deployed elsewhere before execution, which helps with the cold-start problem. Both lenders and borrowers can keep earning on capital while they wait for a trade that meets all conditions.
Since launch, Jupiter Offerbook has reached $450,000 in active loans.
Castle Labs adds that while the model is distinct, proving demand and scaling it will not be easy. Its expansion depends on whether lenders are willing to underwrite collateral risk directly.
Kamino
Kamino recently released the white paper for its fixed-rate lending protocol.
Instead of building a separate fixed-rate market, Kamino adds fixed-rate reserve pools inside Kamino Lend. The advantage, according to Castle Labs, is distribution. Borrowers can see a clear term structure, and lenders can quote for specific rates and maturities without leaving the floating-rate system entirely, making fixed-rate borrowing an extension of the existing setup rather than a replacement.
Each reserve pool on the platform is defined by a rate and a tenor. Users, for example, can borrow USDC at different rates and durations. Taken together, those combinations form a grid.
That grid lets borrowers and lenders express the price and maturity at which they want to transact.
Borrowers can post borrowing intent that specifies collateral, loan size, maximum rate, and tenor. Lenders can post conditional liquidity that specifies the rates, maturities, and sizes at which they are willing to provide funds.
The grid acts as the execution layer. Borrowers can draw from available fixed-rate liquidity in pre-set rate and maturity combinations, or they can post intent and wait for liquidity to match.
Instead of direct matching, lenders quote into a structured grid, such as 4.5% for a 1-month tenor and 5% for a 3-month tenor. That creates a visible term structure and yield curve for different assets.
Using Kamino’s infrastructure, borrowers can either wait for a match or borrow directly from available fixed-rate liquidity in the grid.
Kamino can also roll loans automatically into the next tenor when liquidity allows, in a mechanism Castle Labs says is similar to Tenor’s. If no fixed-rate liquidity is available, the loan can fall back to floating rates. The design is meant to handle maturity events and reduce the borrower’s need to manage each expiry manually.
On exits, lenders need to use a Withdrawal Queue. If capital has already been borrowed out and cannot be returned immediately, the lender enters a first-in, first-out queue and gets repaid when loans in that reserve mature.
That design ensures the lender’s maximum waiting time is constrained by the reserve tenor and does not exceed it.
While counterparties are being matched, capital does not sit idle. It continues earning yield in floating-rate reserves, easing the cold-start problem.
What fixed-rate lending changes
In its conclusion, Castle Labs says fixed rates do not remove the risks that floating-rate lending has exposed over the past few years. What they do is make debt cost explicit.
That, the report argues, is what DeFi credit has been missing.
Floating-rate pools are strong at making borrowing happen instantly, but they compress all demand onto a single utilization curve. Fixed-rate markets let borrowers price duration, let lenders choose tenor and collateral risk, let capital managers allocate across maturities, and let application builders package more predictable credit products.
Castle Labs says early versions of more predictable credit products are already emerging. As one example, Aave launched Stable Vaults in July.
The report says this matters because DeFi lending is expanding across revolving borrowing, basis trades, treasury management, RWA-linked assets, and consumer-facing applications. Those users need more than liquidity. They need clear and fixed financing terms.
Castle Labs expects competition in fixed-rate lending to intensify and says new designs aimed at enlarging the addressable market are likely to keep appearing.
Adoption remains low for now, and floating-rate lending still dominates. Even so, Castle Labs says these products are trying to make the overall market bigger by covering use cases current DeFi lending does not serve well.
The report closes by saying these newer products are also trying to solve the issues early protocols faced while benefiting from stronger distribution, since their floating-rate counterparts are already more mature. Capital from floating-rate markets, for example, can quote into fixed-rate markets while still earning yield and preserving efficiency. As these products mature, Castle Labs says the lending sector could see a large set of strategies that were not practical before, creating a new growth flywheel.