Term Repos

The Term Finance Protocol enables the deployment of Term Repos. A Term Repo is a specific on-chain implementation of fixed-rate collateralized lending modeled on tri-party repo in the TradFi context.

Flow of a standard tri-party repo transaction

Defining Characteristics

Key characteristics of Term Repos include the following:

• Fixed-term, fixed-rate - Term Repos involve fixed-term, fixed-rate loans as opposed open-ended, floating-rate loans common in DeFi. Borrowers must repay their loans on the maturity or repurchase date and must do so within the repurchase window.
• Non-callable - Term Repos are non-callable in that lenders cannot redeem and borrowers cannot repay prior to the maturity or repurchase date.
• Collateralized - Term Repos are meant to facilitate short-term liquidity management needs and made on an over-collateralized basis backed by liquid digital assets (e.g. wBTC, wETH, USDC, USDT).

• Non-custodial - Collateral backing a Term Repo is not held in custody but rather locked in a decentralized smart contract (known as a Term Repo Locker) that is verifiable by both borrowers and lenders in real-time. The Term Repo Locker does not allow for rehypothecation of collateral and is accessible only by users using their private keys and in strict accordance with the terms of the smart contract arrangement. Each Term Repo has a separate Term Repo Locker associated with it.
• Auction mechanism - The interest rate for a Term Repo is determined by an auction known as a Term Auction. Each Term Repo has its own Term Auction.

Term Repos may differ among each other in the characteristics listed above. For example, one Term Repo may have a 4-week term while another Term Repo has a 6-week term.