What is Term Finance (TERM)?
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🟢 The simple version
Plain English — no jargon. Start here.
Term Finance is a fixed-rate, fixed-term lending protocol on Ethereum where borrowers and lenders discover their lending rates through weekly blind auctions — borrowers bid the maximum rate they'll pay, lenders bid the minimum rate they'll accept, and the auction clears at a single equilibrium rate for the term.
The problem with variable-rate DeFi lending
Aave, Compound, and most DeFi lending protocols use variable rates that change every block based on utilisation. For borrowers, this creates refinancing risk — you might borrow at 5% APY today and find yourself paying 15% tomorrow. For lenders, it means uncertain income. Institutional users (hedge funds, treasuries, structured product builders) strongly prefer fixed rates for predictable cost of capital and income streams.
Term Finance solves this through the primary market mechanism used in traditional bond markets: auctions. Each "term" (typically 1-4 weeks) has a separate lending auction. Lenders specify the minimum rate they'll accept for that maturity. Borrowers specify the maximum rate they'll pay. The auction algorithm finds the rate that clears the maximum volume — everyone who bid at or better than the clearing rate participates at that single rate. This is identical to how U.S. Treasury bills are auctioned.
TERM token
TERM is the governance token of Term Finance. It controls: auction parameters, accepted collateral types, and fee settings. TERM launched in 2024 via an airdrop to early protocol users.
Is TERM legal in India?
Yes. TERM qualifies as a Virtual Digital Asset (VDA) under Indian law. 30% tax on gains and 1% TDS applies. Always consult a tax professional.
🟡 A bit more detail
For when you want to go a little deeper.
How Term Finance auctions work
Each Term Finance auction cycle: (1) Borrowers submit collateral to the protocol and submit sealed bids specifying the maximum rate they'd pay; (2) Lenders submit the amount they want to lend and their minimum acceptable rate; (3) At auction end, the protocol runs a clearing algorithm — it sorts borrower bids highest-to-lowest (most desperate first) and lender offers lowest-to-highest (cheapest first), and finds the rate where supply meets demand; (4) All participants at or better than the clearing rate execute at that single rate. This "uniform price auction" prevents price discrimination and is the standard mechanism for sovereign debt issuance globally.
Term Finance vs Morpho and Aave
Aave: variable rates, perpetual (no maturity), large liquidity. Morpho Blue: variable rates, isolated markets, perpetual. Term Finance: fixed rates, specific maturities (1-4 weeks), auction-based discovery. Term is more suited for users who specifically need fixed rate certainty and can commit funds for the duration of a term. The auction mechanism also means rates are market-discovered rather than algorithmically set — potentially more efficient pricing.
Term Finance's auction model means you don't have a guaranteed execution rate when you submit a bid — you learn the clearing rate only after the auction ends. If your bid is at the clearing rate, you may receive partial fill. This is standard for auctions but different from the immediate certainty of Aave deposits. Live data: CoinGecko
🟣 The full technical picture
For the technically curious.
Key facts
- Token: TERM (governance)
- Function: Fixed-rate, fixed-term lending via weekly blind auctions
- Chain: Ethereum (primary)
- Auction type: Uniform price auction (same mechanism as US Treasury bills)
- Term durations: Typically 1-4 weeks per auction
- Collateral: ETH, WBTC, USDC, stETH, and approved collateral types
- Target users: Institutional borrowers and lenders wanting rate certainty
- vs Aave: Fixed rate + fixed term (Aave = variable + perpetual)
- TERM launch: 2024 (retroactive airdrop)
Clearing rate mechanics
In Term Finance's uniform price auction: all successful borrowers pay the clearing rate, even if they bid higher. All successful lenders receive the clearing rate, even if they offered lower. This single-price property ensures no participant gets a worse rate than necessary and creates a transparent reference rate for the market. The clearing rate is effectively the market consensus for the risk-free(ish) lending rate for that collateral type and maturity — valuable information beyond just the transaction itself. Term Finance publishes historical clearing rates, creating a nascent on-chain yield curve.