Investing in Kairos

We believe bringing the interest rate swap on chain will facilitate the hedging of variable reference rates in DeFi, freeing market participants to offer long awaited fixed rate products at massive scale.

In traditional finance, the interest rate swap is a key instrument that allows market participants to hedge interest rate risk by swapping variable exposures for fixed and vice versa. This allows participants to lock in a predictable fixed rate for ease of ongoing risk management, or to take on variable exposure with the expectation of rate changes in their favor.

Bringing this proven financial primitive on-chain could have a huge impact on the on-chain market for borrowing and lending. Since the beginning of DeFi, the growth of borrow/lend products has been hampered by the market’s reliance on variable rates. In markets as volatile as ours, all liquid DeFi pools to borrow or lend capital are tied to variable reference rates. This limitation has greatly impeded the growth of DeFi borrowing among end users. In the ordinary world, the market for fixed-rate borrowing and lending is orders of magnitude larger than the variable market. This fact has created the natural desire among consumers for fixed rate products on chain - until now, this has been among the largest unaddressed markets on chain.

Kairos aims to play a part in the growth of fixed-rate lending on chain. The team’s view is that the on chain interest rate swap will allow participants, such as vault curators, to hedge variable rates for fixed rates and then pass fixed-rate products along to consumers. With this newfound ability, Kairos expects the addressable market for on chain borrowing and lending will expand meaningfully as end users borrow against their crypto holdings for a fixed rate or earn a fixed yield for lending their assets.

We think now is the right time and Kairos is the right team to help usher in an era of on chain fixed rate borrowing and lending. The founders, Thomas and Vince , both came from Gemini where they helped launch the very successful Gemini card business. The two of them have a thorough understanding of the interest rate swap as a primitive, the market into which they are launching, and the opportunity set in front of them.  We are excited to back Kairos and get a front row seat to their growth.

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