Design of a Decentralized Fixed-Income Lending Automated Market Maker Protocol Supporting Arbitrary Maturities

TL;DR

The paper addresses the limitation of existing DeFi fixed-income AMMs that support only a single maturity by introducing BondMM-A, a unified, single-contract AMM that accommodates arbitrary maturities via a present-value framing. It preserves key invariants and solvency mechanisms while enabling trades with per-transaction maturities, thereby reducing capital fragmentation and improving liquidity. Experimental results show BondMM-A’s rates align closely with market expectations and maintain stable net equity, indicating robust financial behavior under simulated market dynamics. This work offers a practical path toward decentralized, multi-tenor fixed-income markets with improved capital efficiency and operational flexibility.

Abstract

In decentralized finance (DeFi), designing fixed-income lending automated market makers (AMMs) is extremely challenging due to time-related complexities. Moreover, existing protocols only support single-maturity lending. Building upon the BondMM protocol, this paper argues that its mathematical invariants are sufficiently elegant to be generalized to arbitrary maturities. This paper thus propose an improved design, BondMM-A, which supports lending activities of any maturity. By integrating fixed-income instruments of varying maturities into a single smart contract, BondMM-A offers users and liquidity providers (LPs) greater operational freedom and capital efficiency. Experimental results show that BondMM-A performs excellently in terms of interest rate stability and financial robustness.

Figures (4)

• Figure 1: Comparison of BondMM-A average rate and market rate; they nearly overlap.
• Figure 2: Difference between BondMM-A average rate and the market rate.
• Figure 3: Standard deviation of BondMM-A rates at each time step.
• Figure 4: BondMM-A net equity minus initial capital.