Real-world assets (RWAs) already back the largest stablecoins, but borrowing against them onchain still runs through variable-rate pools, leaving longer-dated borrowers exposed to unpredictable costs. Peter Gaffney of O2O Capital Partners argues that fixed-rate, fixed-term lending is the missing piece for scaling RWAs in decentralized finance (DeFi).
Variable-rate limits for RWA borrowers
Stablecoin supply is steadily sitting around $300 billion, and aggregate vault assets are nearing the $20 billion milestone. Morpho alone carries more than $16 billion in deposits, most of it in variable-rate markets priced on pool utilization. These markets serve crypto-native traders who manage liquid positions in real time but leave longer-dated borrowers with uncertainty.
RWA leverage onchain runs almost entirely through variable-rate pools, where the borrow rate is set by utilization rather than by a lender agreeing to a price. Illustratively, Aave’s rate curve lifts the USDC borrow rate from 4% to 14% as utilization climbs from 92% to 100%. JAAA yields between 4.5% and 5% and Maple’s syrupUSDC pays 5.2%, while the one-year average USDC borrow rate on Aave V3 Ethereum is 4.56%, leaving just 50 basis points of spread to work with.
The variance in these borrow rates scares off would-be RWA loopers or limits them to double-digit-yielding RWAs, which greatly narrows the accessible universe of investment-grade credit. Coin Metrics found routine daily utilization spikes on a $2 billion pool, and the April 2026 KelpDAO rsETH exploit pinned Aave’s USDC pool at 100% utilization, causing borrowers to pay the maximum 14% rate for five days. Since tokenized credit products can take anywhere from T+1 to well beyond T+90 to settle redemptions, a spike like that can outlast the holder’s ability to exit while running an unprofitable trade.
Fixed-rate lending closes the gap
Fixed-rate, fixed-term lending closes that gap by matching the term of the loan to the duration of the collateral, especially for RWAs whose redemptions can settle anywhere from T+7 to T+90. With the borrow cost and maturity known at entry, institutional counterparties can underwrite an RWA looping vault the same way they approve conventional term financing.
This mirrors the foundation that grew traditional credit markets to $51 trillion in US fixed income versus $1.6 trillion in floating-rate leveraged loans. The move to fixed rates is already underway: Morpho recently opened fixed-rate, fixed-term markets through Morpho Midnight, which Coinbase used to launch fixed-rate crypto-backed loans to its customers in September 2026.
Fixed-rate platforms like Tenor Finance, Kamino, Term Labs and Loopscale now quote rates against products, with a Kamino market offering 5.3% fixed-rate loans against Figure’s auto loan portfolio in rolling 30-day terms. Combined with one-click leverage providers, which compress multiple loops into a single transaction, these markets let institutional underwriters size into leveraged RWA positions at scale.
Potential demand and broader context
For sizing, a 5% reallocation of the $12 billion in Sky and Ethena reserve capital into fixed-rate looped RWA strategies at 3x is $600 million of equity and $1.8 billion of RWA demand, before foundations, digital asset treasury companies and exchange Earn programs contribute to growth.
RWAs already back the largest stablecoins, with Ethena and Sky committing more than $2.4 billion to JAAA, BUIDL, STAC, and USTB. Expanding DeFi beyond crypto requires non-crypto-correlated RWAs, and RWAs require more precise lending markets to scale. DeFi’s narrow collateral base of volatile crypto assets was highlighted by the October 10, 2025 liquidation cascade, a $19 billion event that marked the start of a nearly 60% reduction in DeFi total value locked over the following eight months.
Well-positioned issuers of underwritten, loopable, non-crypto correlated RWAs will be the beneficiaries as DeFi’s collateral base finally grows beyond crypto.
