Spine Finance: Unlocking Fixed-Rate Lending for Compound

Ideas
1

Overview

Spine Finance is a decentralized fixed-rate protocol that makes lending and borrowing on Compound simple, instant, and flexible. By integrating with Compound’s variable-rate money markets, Spine harnesses stable liquidity and transforms it into predictable yields for all DeFi participants - ranging from institutions and whales seeking substantial, long-term financing to everyday users wanting stable loans.

1. The Need for Fixed-Rate Lending

On-Chain Borrowers Are Borrowing for Much Longer

Data from leading DeFi platforms shows typical loan durations rising from around 40 days in 2020 to nearly 100 days today. This jump reflects a growing appetite for longer-term credit among both retail users and institutions.

Long-Horizon Investing and Predictable Costs

Corporate treasuries, DAOs, and large capital allocators often require stable interest obligations over months or years. By locking in a set yield, these institutions can deploy large sums on Compound without worrying about sudden rate hikes.

Everyday DeFi Users and Yield-Farming

Individuals seeking a secure, consistent return - including leverage-looping yield farmers - can lend Compound’s assets at a fixed rate through Spine, avoiding the volatility that typically comes with floating-rate protocols.

2. Compound’s Road to TradFi: Why Fixed Rates Matter

From community discussions in “Compound’s Future: Three Paths” and “Grow Compound on a Different Path”, it’s clear that billions of potential institutional capital remain on the sidelines due to:

  1. Smart Contract Risk

  2. Lack of Fixed-Rate Options

  3. Regulatory Uncertainty

Spine’s Role:

Spine Finance directly solves the fixed-rate issue by layering a predictable rate environment on top of Compound’s variable APR markets. When combined with Compound’s progress on regulatory clarity, it provides a more TradFi-friendly offering to onboard large-scale capital.

3. How Spine’s AMM Model Works

BondMM & sBOND

  • BondMM Liquidity Pool: Spine pairs each Compound-supported asset (ETH, WBTC, USDC, etc.) against “bond” tokens called sBOND, each representing a promise of future repayment at a set interest rate.
  • Borrowers: Mint sBOND (debt) to the pool and receive the base asset in exchange at a fixed rate.
  • Lenders: Deposit the base asset to receive sBOND, locking in a stable redemption value at maturity.

Interest Rate Discovery

  • The ratio of the base asset vs. sBOND sets the real-time interest rate.
  • More borrowing pushes rates up; more lending pushes rates down. This on-chain supply-demand mechanism ensures fair, dynamic pricing.

Continuous Rate Updates

Every transaction rebalances the reference rate. The end result: a market-driven fixed-rate environment that accommodates both large and small trades seamlessly.

4. Building on Top of Compound

Resupplying Compound’s Current Suppliers

  • Acting as the Bank: Current Compound suppliers (e.g., cToken holders) can deposit (or “resupply”) their assets into Spine’s LP. This effectively re-lends those assets under a fixed-rate model.
  • Interest + Extra Fees: By doing so, these suppliers become the “bank” in Spine’s marketplace:
    • Paying interest to fixed-rate lenders (who deposit base assets to buy sBOND).
    • Collecting interest from borrowers (who mint sBOND to obtain the base asset).
    • Earning trading fees from each swap/exit, on top of the original Compound yield from their cTokens underlying positions.
  • Double Yield Opportunity: Suppliers continue to earn Compound’s variable yield while also profiting from fees using Spine’s fixed-rate mechanisms.

Compound’s Liquidity & Brand

  • Trusted Base: Compound’s large and trusted liquidity pool sets the stage for robust risk management and high-volume trades.
  • Smooth Transition: Users can move from variable APR (directly on Compound) to fixed APR (via Spine) or vice versa, without excessive friction.

White-Label Option for Seamless Integration

  • Invisible Spine Layer: Spine can operate as a white-label solution behind the scenes, allowing end users to continue interacting primarily through Compound’s interface or custom front ends.
  • Direct or Indirect Access: Protocols, DAOs, or institutions can integrate Spine’s fixed-rate functionality directly into their Compound workflows—either by calling Spine’s contracts in the background or by using Spine’s own user interface for advanced configuration.

5. Multi-Collateral Approaches to Compound Pools

Blue-Chip Pools

  • Established Crypto Assets: These pools focus on top-tier collaterals like wETH, wBTC, major LST, or other widely recognized, highly liquid assets.
  • Lower Risk, Higher Liquidity: These pools tend to maintain tighter spreads, more stable rates, and lower liquidation risk. They’re especially appealing for institutional-grade borrowing or long-term holders of major tokens who want to tap Compound stable liquidity without selling.

Yield Pools

  • Diverse Yield-Bearing Collateral: These pools accept assets that generate yields or reflect future yield streams (sUSDS, sUSDe, tokenized RWA positions, or principal tokens from Pendle…).
  • Enhanced Earning Opportunities: Supporting leverage-looping yield-farming strategies.

6. Spine’s Compatibility with Compound

Zero Lock-Up

  • No Forced Commitments: Spine’s fixed-rate positions do not lock users in for the entire duration. Borrowers and lenders can unwind or adjust their sBOND positions at any time, paying interest only for the period used.
  • Aligns with Compound’s Flexibility: Compound users, already accustomed to a permissionless lending environment, now have a fixed-rate extension without losing the freedom to exit early if market conditions or strategies change.

Instant Entry & Exit

  • Seamless Integration: By layering on top of Compound’s liquid markets, Spine allows large or small trades to execute quickly, ensuring that both borrowers and lenders can open or close positions practically on demand.
  • Institution-Ready: Whales and corporate treasuries need rapid access to capital; Spine’s on-chain rate discovery and fast settlement times help them move multi-million-dollar sums without lengthy waiting periods.

Capital Efficiency

  • Single Multi-Maturity Pool: Unlike protocols that fragment liquidity for each maturity, Spine aggregates durations in one pool, maximizing asset usage and reducing idle capital.
  • Compound Suppliers as Banks: Resupplying cTokens or underlying assets into Spine’s LP drives additional yield streams - interest from borrowers, fees from trades - on top of Compound’s existing variable yield. This approach squeezes out inefficiencies while enhancing returns for all parties.

More Information on Spine

App: https://spine.finance/
Whitepaper (How we enable fixed-rate lending): Whitepaper | Spine Finance

3 Likes
2

Thanks for sharing the team’s proposal. But do have some questions from governance / DAO perspective.

  1. Is it correct that the current liquidity is less than $120? If so what’s the team’s plan on growing it?

    image
    image1280×403 79.5 KB

  2. What exactly is the team requesting? Is it that the team is requesting Compound DAO to deploy capital into the protocol? If so, the risk seems extremely high as Compound will be taking a leap of faith into a protocol that just launched and doesn’t have high tvl.

3

Thanks for the questions, mate!

  1. We’re actually not live yet. These are just our testing versions that we are leaving public on our site with low traffic. We’re working with partners to get the initial TVL out (Looking to be 5-10m) once we roll out fully on mainnet in Late May/Early June.

  2. We’re not requesting anything at the moment. We just want to share how we are building the fixed-rate layer on Compound, and our post is to bring some attention to what we do. We’re having conversations with the Compound/AG team while building out/thoroughly testing our products, and before making any formal proposal for any help from the DAO.

4

Hey Nammie,

Few questions:

  1. Could you explain what your 5 - 10M seed liquidity will enable you to do, and where they will deposit?

  2. This seed liquidity will be sticky - which means you will be able to facilitate maybe 2.5M in borrows at a fixed rate?

  3. How can you promise fixed rates for borrowing, if the cTokens can be removed at any time?

  4. What would growth look like ideally, in a partnership between Compound and Spine, for say, a 25M vault for Levered Looping, for a specific pair, who wanted a fixed rate?

What would you need from Compound to make that happen?
What would the fixed rate be, and for what term?

Appreciate the writeup.

1 Like
5

Thanks for the questions, Kyle!

The 5-10M seed liquidity will help us adequately test out the pmf ability of our product, to test if people are willing to make fixed-rate loans/lendings positions at a meaningful scale.

We target for about 40-60% utilization rate, so we would be more than capable of facilitating around 2.5-5M in loans. With our model, we’re actually capable of facilitating an amount 3-4-5x more than the initial liquidity based on market demands for lending and borrowings.

At a high level, Spine offers a “fixed rate” by tokenizing each loan into a bonded asset (sBOND) whose redemption value is set at the time of borrowing. Although cTokens can be removed from Spine’s liquidity pool at any time, the borrower’s sBOND - and its associated interest rate - remains locked in until maturity. If lenders exit early, they sell their sBOND back into the pool (at the then-current market price), but the borrower’s established rate does not change.

Here is a video explanation that we made for how our model works: Video

Here is our whitepaper/research paper if you want to dig deeper: BondMM

For a 25M vault partnership, we’d prefer for it to be stablecoin vaults in terms of USDC or USDT, most likely split the 25M into 2 vault strategies

  1. Blue-chip vault: support lending and borrowing with blue-chip collaterals such as BTC, ETH, and major ETH LSTs …

Users of this vault would be either fixed-rate lenders that want to lock in rates over a long time-horizon without much exposure to high-risk assets. On the fixed-rate borrowing side, users would be those who want to do leverage trading on long-time horizon without exposures to funding rates, or those who simply want to borrow for other purposes without exposure to variable interest rates.

  1. Yield vault: support lending and borrowing with yield-bearing collaterals including Yield-Bearing Stablecoins like sUSDE, sUSDS… or Liquid Yield Tokens like Pendle PT Tokens, Midas LYTs…

Users of this vault would be those who want to do levered-looping strategies with a fixed borrowing cost over their borrowing duration, without risking borrowing rates exceeding their underlying collateral yield rate, thus deleting their profits.

To enable that on top of Compound, we would need Compound users (or the DAO itself or directly from Spine’s seed liquidity) to deposit as fixed-rate LPs (or we also call them Resuppliers). As a fixed-rate LP, you are not earning fixed-rates yourself, but rather you are the one providing the LP in BondMM for other users to make fixed-rate positions on top (Pretty much acting like a Bank, paying money for the fixed-rate lenders (depositers) and earning money from the fixed-rate borrowers).

As the fixed-rate LPs, any idle liquidity sitting in the LP will be automatically supplied to the corresponding Compound Markets. By doing this, Compound suppliers can earn extra yield by enabling fixed-rate positions (because fixed-rate would be designed to pay more than variable rate positions), and earning trading fees from users trading positions, while not having to give up on the existing/underlying Compound rate.

With Spine being relatively new and still in the developing process (although we have launched a limited Beta version on Mainnet and Base), we’re looking to launch fully on Mainnet in Late May/Early June, we would expect something like this to come a little later. As we roll out our product more and have our contracts/products more battle-tested for the Compound DAO to make a formal partnership.