Real-world assets already play a major role in the reserves of leading stablecoin projects, but their use as collateral in decentralized finance remains constrained by borrowing markets whose rates can change sharply. Peter Gaffney, co-founder of O2O Capital Partners, argues that fixed-rate, fixed-term loans could provide the missing structure needed to expand the sector.
Why variable-rate markets are a problem
DeFi lending is largely built around variable-rate pools. Borrowing costs are typically determined by pool utilization: rates rise as available liquidity becomes scarcer and can change substantially during periods of market stress. That model suits crypto traders managing liquid positions, but it is less compatible with tokenized credit and other real-world assets whose redemptions may take weeks or months.
According to CoinDesk, stablecoin supply is approaching $300 billion, while aggregate vault assets are nearing $20 billion. Morpho alone has more than $16 billion in deposits, most of it in variable-rate markets. These figures indicate the scale of the existing lending infrastructure, but also highlight the gap between short-term crypto financing and the longer horizons often required by real-world assets, or RWAs.
Gaffney says fixed-rate, fixed-term financing would allow borrowers to know their funding cost and maturity when a transaction begins. That would make it easier for institutional credit teams to assess leveraged RWA strategies using processes similar to conventional term financing.
The basic strategy is familiar in traditional credit markets: acquire an income-generating asset, borrow against it at a rate below its yield, and use the funds to purchase more of the asset. In DeFi, this type of “looping” strategy has been difficult to structure reliably when the borrowing rate can change before the collateral can be sold or redeemed.
The potential mismatch is illustrated by Aave’s USDC lending curve. The source material says the rate can rise from 4% to 14% as utilization moves from 92% to 100%. JAAA, one of the referenced tokenized credit products, yields between 4.5% and 5%, while Maple’s syrupUSDC pays 5.2%. The one-year average USDC borrowing rate on Aave V3 Ethereum was 4.56%, leaving only about 50 basis points of spread against JAAA at the lower end of its yield range.
That spread can disappear if utilization spikes. Coin Metrics identified recurring daily utilization surges in a $2 billion pool, while an April 2026 KelpDAO rsETH exploit pushed Aave’s USDC pool to full utilization. Borrowers then paid the maximum 14% rate for five days. For tokenized credit products with redemption timelines ranging from T+1 to more than T+90, such a jump can last longer than the borrower’s ability to exit the position.
Fixed-term funding and the RWA market
Fixed-rate lending addresses the duration problem by matching the loan’s term to the collateral’s expected life. A borrower financing an RWA can therefore assess the position with a known funding cost instead of relying on a rate that is reset by changing pool demand.
The move toward this model has already begun. Morpho has opened fixed-rate, fixed-term markets through Morpho Midnight, and Coinbase used the platform to launch fixed-rate crypto-backed loans for customers in September 2026. Other platforms named in the source material include Tenor Finance, Kamino, Term Labs and Loopscale, which now quote rates against particular products.
One Kamino market offers 5.3% fixed-rate loans against Figure’s auto-loan portfolio in rolling 30-day terms. Combined with one-click leverage services that execute several borrowing and reinvestment steps in a single transaction, these markets could make it easier for institutional underwriters to build larger leveraged positions in RWA products.
RWAs are also relevant because they could broaden DeFi’s collateral base beyond volatile crypto assets. The source material links the need for diversification to the liquidation cascade of Oct. 10, 2025, which it describes as a $19 billion event, followed by an almost 60% reduction in DeFi total value locked over the next eight months.
The largest stablecoin ecosystems are already allocating to tokenized real-world assets. Ethena and Sky have committed more than $2.4 billion to JAAA, BUIDL, STAC and USTB. Gaffney estimates that shifting 5% of Sky and Ethena’s combined $12 billion in reserve capital into fixed-rate, three-times-leveraged RWA strategies would represent $600 million of equity and generate $1.8 billion in RWA demand, before considering other potential sources such as foundations, digital-asset treasury companies and exchange Earn programs.
Moneyiar market picture
Moneyiar data recorded at 23:08-23:09 on Oct. 22, 2026, showed a broadly weaker market among the assets listed:
- Ethereum was trading at $2,382.15, down 3.90% over 24 hours and 2.54% over seven days.
- Sky was at $0.07279, down 3.60% in 24 hours but up 0.97% over seven days.
- Ethena was trading at $0.19771, down 7.35% over 24 hours and 3.02% over seven days.
- Stable was at $0.02562, down 2.25% over 24 hours and 6.02% over seven days.
These market moves do not determine whether fixed-rate RWA lending succeeds, but they provide context for the volatility surrounding the wider crypto market. The central argument remains that predictable financing costs and maturities may be necessary if DeFi is to support a wider range of investment-grade, non-crypto-correlated assets.
