Interest rate swaps. Onchain.
Swaps 101: how Kairos works
How a fixed rate is built, what a carry trade locks and what it doesn't, how Up and Down pay out, who takes the other side, and what can go wrong.
A rate swap
in two numbers
A rate swap trades one interest rate for another over a set term. One side pays a fixed rate, agreed when the swap opens. The other pays the variable rate as it actually turns out. At expiry the two are netted and only the difference changes hands, worked out on an amount called the notional. Nobody lends or borrows the notional; it only sizes the payments.
Worked example
You pay 4% fixed and receive the variable rate. If the variable rate averages 5% over the term, you receive the difference: about 1% a year on the notional, for the length of the term, less fees and capped by the collateral the pool posts.
On $100,000 for 30 days that is about $82 before fees. If it averages 3% instead, you pay about $82.
Every Kairos product is one side of that trade:
- Fixed-rate loans
- Fixed side. Pay fixed, receive Aave's variable rate, next to your loan.
- Carry trades
- Fixed side. The same lock, used to fix what it costs to borrow to earn.
- Predict: Up
- Fixed side. Profits if the variable rate averages above its break-even.
- Predict: Down
- Floating side. Profits if the variable rate averages below its break-even.
- Earn
- The pool. Liquidity providers take the other side of every swap.
Fixed-rate loans
One rate for the term, within a protected range
Aave's variable borrow rate can change with every block. A Kairos fixed-rate loan gives you one rate for 30, 60 or 90 days on USDC or USDT borrowed on Aave V3, on Ethereum, within a protected range.
How the fixed rate is built
Your loan stays on Aave, in your name, at Aave's variable rate. Kairos adds a swap next to it: you pay a fixed rate and receive Aave's variable rate. When Aave's rate rises, the swap pays you the difference; when it falls, you pay it. Net, your cost lands near the fixed rate.
The fixed rate starts from Aave's recent average rate and adds a utilization fee and a risk premium, both paid to the pool on the other side. A protocol fee comes on top. Fixed rates often sit above today's variable rate: you are paying for certainty over the whole term.
Two ways in
A new loan. Pick USDC or USDT, a term, and your collateral: ETH, WETH, wstETH, WBTC or cbBTC. One signed transaction supplies the collateral to Aave, borrows, and buys the swap, whose cost is added to the loan. Some wallets need a one-time approval first.
A loan you already have. Already borrowing on Aave? You can fix the rate on that loan too, without refinancing or moving it.
Why the rate holds within a range
Both sides of a swap post limited collateral: you, and the pool that backs it. That sets a range for Aave's average rate over the term, called the protected range. Inside it, your rate stays fixed. Outside it, the swap closes early:
- Above the top, the pool's backing runs out. The swap pays you its maximum early and closes, and your loan continues at the variable rate.
- Below the bottom, your swap collateral runs out. The swap is liquidated, you lose that collateral, and your loan continues at the lower variable rate.
As a rule of thumb the range runs from about (1 − 1/L) to (1 + 1/L) times the fixed rate, where L is the market's leverage multiplier. The 30- and 60-day markets use 2x, so roughly half to one and a half times the fixed rate. The 90-day markets use 1.75x, a little wider. The loan quote shows your exact range, and you confirm it before you sign.
When the term ends, the swap settles to your wallet; it does not repay Aave. From then on your loan is variable again until you lock it again or repay it.
Worked example
5% fixed for 30 days, at 2x
Fixed rate
5.0%
Protected range
≈2.5–7.5%
- A short spike is absorbed. What counts is Aave's average over the term. A week at 10% in an otherwise 5% month averages about 6.2%: inside the range, so your rate holds.
- A sustained move closes the lock early. If Aave's rate sits at 9% from day one, the swap reaches its maximum payout around day 18, pays it to you and closes. Your loan is variable for the rest of the term.
- A collapse costs the swap collateral. If Aave averages below about 2.5%, the swap is liquidated and you lose its collateral. Your loan keeps accruing, at that low variable rate.
Illustrative. Assumes the fees in the rate are small next to the rate itself. Your quote shows the real range.
Fixed within a protected range. Swap collateral can be liquidated; the most you can lose on the swap is the collateral, liquidation bounty and protocol fee you post. Your Aave loan carries Aave's own risks, including liquidation if your collateral falls in value. Aave V3 USDC and USDT on Ethereum.
Carry trades
Lock the borrowing cost, not the yield
A carry trade borrows at one rate and holds an asset that pays more. The usual risk is that the borrowing rate rises and eats the gap. Kairos fixes that rate; the yield is still up to the asset.
01
Borrow on Aave
Borrow USDC or USDT on Aave V3, or use a loan you already have there.
02
Fix the rate with Kairos
Lock that borrow rate for a term of up to 90 days.
03
Buy the yield asset elsewhere
Savings rates, tokenized T-bills, synthetic dollars, private credit or fixed-yield tokens, each on its own venue.
Three venues are involved: Aave lends, Kairos fixes the rate, and the asset comes from its own issuer or market.
Locked
- Your borrow rate, on the swap's notional, for the term.
- It holds within the protected range, like any fixed rate on Kairos.
Not locked
- The asset's yield. Most yields float. A fixed-yield token is fixed only if you hold it to maturity, and its price moves before then.
- The asset's price, redemption terms and issuer risk, including depegs.
- Liquidation of your Aave loan if your collateral falls in value.
- What it costs to lock again after the term.
Illustrative, not a current quote
Earn 7.10% − borrow 4.80% fixed = +2.30% a year
About +$57 on $10,000 borrowed, over 90 days.
The carry screen lists only trades whose current yield beats today's fixed borrowing cost, protocol fee included. If nothing clears it, nothing is listed.
Kairos fixes the borrow side only. You borrow on Aave and buy the yield asset elsewhere; its yield and risks are its own. Carry is annualised on the amount borrowed, base yield only, without incentives. Spreads can shrink or turn negative after you enter.
Predict
Call the direction of Aave's borrow rate
Each Predict market tracks Aave V3's USDC or USDT borrow rate over a set term, from 1 to 90 days. Pick Up if you expect the rate to average higher over the term, Down if lower.
Up takes the fixed side of a swap: you pay a fixed rate and receive the variable one. Down takes the floating side: you receive a fixed rate and pay the variable one.
The average counts, not the end value.
Settlement compares the rate's average over the whole term with the fixed rate. A rate that jumps on the last day after sitting low all term still averages low.
Each side has its own break-even.
Up profits if the rate averages above Up's break-even; Down profits if it averages below Down's. Fees sit between the two, so if the average lands between them, both sides lose.
Gains are capped.
Your payout can't exceed the collateral the pool posts to back your position, however far the rate moves.
Your maximum loss is shown first.
It is the collateral, liquidation bounty and protocol fee you post, shown as Total Required before you sign. A position can be liquidated before expiry if the rate moves far enough against it.
Worked example, illustrative numbers
Say a 30-day USDC market shows a break-even of 5.30% for Up and 4.90% for Down. What decides each side is where Aave's rate averages over the 30 days:
| Aave averages | Up | Down |
|---|---|---|
| 5.60% | Profit | Loss |
| 5.10% | Loss | Loss |
| 4.60% | Loss | Profit |
At 5.10% the average sits between the two break-evens, so both sides lose to fees.
Leveraged positions can be liquidated before expiry. Not available to U.S. persons or in other restricted regions.
Markets
What a market is
A Kairos market sets three things in advance: the rate it tracks, how long each swap runs, and the leverage multiplier that decides how much collateral each side posts.
Rate
The onchain rate the market settles on. Live today: Aave V3's USDC and USDT variable borrow rates, on Ethereum.
Term
How long each swap runs, counted from the moment you open it: 1, 30, 60 or 90 days. There is no shared expiry date.
Leverage multiplier
Set per market, not chosen by you. Collateral is roughly notional × rate × term ÷ multiplier, so a higher multiplier means less collateral and a narrower protected range.
| Term | Leverage multiplier |
|---|---|
| 1 day | 8x |
| 30 days | 2x |
| 60 days | 2x |
| 90 days | 1.75x |
Each market comes as a pair: a fixed side and a floating side on the same rate and term. Fixed-rate loans and Up take the fixed side; Down takes the floating side.
For scale: on a 30-day market with a 2x multiplier, with the rate near 5%, $100,000 of notional needs about $205 of collateral, plus a 2% liquidation bounty and the protocol fee.
The trade window shows the result as effective leverage: your notional divided by the collateral you post. Here that is in the hundreds, far above the 2x multiplier, because collateral is sized to the rate payments, not to the notional.
Who takes the other side
Each market has a pool funded by liquidity providers. The pool is the counterparty to every swap in that market and locks collateral to back each one. Liquidity providers earn the utilization fees and risk premiums built into every quote, and they take the gains and losses when rates move for or against the pool.
That backing is limited, which is why every fixed rate comes with a protected range.
What makes Kairos different
Built for any onchain rate.
A market is built on an oracle, not wired to one lender, so any onchain rate with a dependable feed can become one. Live today: Aave V3 USDC and USDT borrow rates on Ethereum.
Settlement reads Aave directly.
Swaps settle on the growth of Aave V3's variable-borrow index from entry to expiry, read from Aave itself. A one-block spike barely moves it.
Both sides post collateral up front.
You post collateral when a swap opens, and the pool locks collateral to back it. Nobody relies on a promise to pay later.
Optionally wrap positions as ERC-721.
Every swap is recorded onchain in your name. If you want a transferable token, you can wrap a position as an ERC-721 NFT and redeem its settlement from the token later.
Risks
Know the worst case before you sign
What you are relying on, and what can go wrong, in plain words.
Liquidation
Each side of a swap posts limited collateral. If the rate moves far enough against your position before expiry, it is liquidated and you lose the collateral and bounty you posted.
A fixed-rate loan carries a second, separate risk: Aave can liquidate the loan if your collateral falls in value. The loan page won't open a loan below a health factor of 1.1.
The protected range
A fixed rate holds only while Aave's average rate stays inside its protected range. Above it, the swap pays its maximum early and closes; below it, the swap is liquidated. Either way your loan is variable again for the rest of the term.
Maximum loss and fees
The most you can lose on a swap is the collateral, liquidation bounty and protocol fee you post. Every quote shows it before you sign.
The protocol fee is capped onchain at 3% a year of the notional, charged up front for the term. The fixed rate also includes a utilization fee and a risk premium, paid to the pool.
Oracle design
Settlement reads the growth of Aave V3's variable-borrow index from entry to expiry, straight from Aave. The fixed quote is priced from a 24-hour trailing average of that index, computed onchain, plus a risk premium.
The premium is the one offchain input: a signed feed whose moves are bounded onchain. If an oracle can't give a valid reading, new swaps are refused rather than priced on a guess.
Smart contracts and audits
Smart contracts can have bugs, and onchain losses are usually permanent. Audits reduce that risk; they don't remove it.
Who can use Kairos
Kairos is not available to U.S. persons, including U.S.-organised entities, or in sanctioned or otherwise restricted regions. Trading through a VPN is blocked.
Rates are estimates until your transaction executes onchain. Nothing on this page is investment advice. See the Terms of Service.
Why rates matter
Interest rate swaps are the largest derivatives market in the world. Banks, funds and companies use them every day to fix what they pay on a loan, or to take a view on where rates are heading.
Onchain borrowing is mostly variable: Aave's borrow rate can change with every block. Kairos brings the same tool onchain, on the rates DeFi borrowers actually pay, with collateral posted up front and settlement read from Aave's own index.
Notional amount outstanding. Source: BIS OTC derivatives statistics
Glossary
The words, in plain English
- Break-even
- The average variable rate over the term at which a position neither gains nor loses, fees included. Up and Down each have their own.
- Collateral
- What you post when a swap opens. It comes back at settlement, plus or minus the rate difference, unless the position is liquidated.
- Effective leverage
- Your notional divided by the collateral you post, shown in the trade window. Collateral is sized to the rate payments, not the notional, so this is far higher than the market's leverage multiplier.
- Fixed side and floating side
- The fixed side pays a fixed rate and receives the variable rate; fixed-rate loans and Up use it. The floating side does the reverse; Down uses it.
- Leverage multiplier
- A setting on each market that divides the collateral both sides post. A higher multiplier means less collateral and a narrower protected range. Not the same as effective leverage.
- Liquidation
- Closing a position before expiry because its collateral can no longer cover what it owes.
- Liquidation bounty
- An extra 2% of your collateral, posted alongside it. You get it back at settlement; if the position is liquidated, it pays whoever liquidates it.
- Liquidity provider (LP)
- Someone who deposits into a market's pool, which takes the other side of every swap in that market.
- Notional
- The amount a swap's payments are worked out on. Nobody lends or borrows it.
- Protected range
- The band of Aave's average rate over the term inside which a fixed rate holds to the end.
- Protocol fee
- A fee charged up front when a swap opens, set as an annual rate on the notional and capped onchain at 3% a year.
- Reference rate
- The variable rate a market settles on. Here, Aave V3's USDC or USDT borrow rate, measured by Aave's borrow index.
- Risk premium
- Part of the fixed rate, paid to the pool for carrying the other side. It comes from Kairos's pricing model as a signed feed.
- Term
- How long a swap runs from the moment it opens: 1, 30, 60 or 90 days on today's markets.
- TWAR
- Time-weighted average rate. Fixed quotes start from a 24-hour TWAR of Aave's borrow index, computed onchain.
- Utilization fee
- Part of the fixed rate that rises as more of the pool's capacity is in use.
FAQ
Short answers
Is a fixed rate fixed no matter what?
No. It holds while Aave's average rate stays inside the protected range shown on your quote. A sustained move beyond it closes the lock early, and your loan is variable again for the rest of the term.
Do I have to move my Aave loan?
No. A new fixed-rate loan is opened on Aave in your name, and a loan you already have stays where it is. Kairos adds a swap next to the loan; it never takes the loan over.
What happens when the term ends?
The swap settles: its collateral comes back to your wallet, plus or minus the rate difference. It does not repay Aave for you. Your loan continues at the variable rate until you repay it or lock it again.
What is the most I can lose?
On a swap, the collateral, liquidation bounty and protocol fee you post, shown before you sign. A loan on Aave carries Aave's own risks too, including liquidation if your collateral falls in value.
Who is on the other side of my swap?
The market's pool, funded by liquidity providers. It locks collateral to back each swap and earns the fees built into the fixed rate.
Which chains and rates are supported?
Live today: Aave V3's USDC and USDT borrow rates on Ethereum, with terms of 1, 30, 60 and 90 days. Fixed-rate loans use the 30-, 60- and 90-day terms.
Is my position an NFT?
Positions are recorded onchain in your name. You can optionally wrap one as an ERC-721 NFT to make it transferable.
Can I use Kairos from the United States?
No. Kairos is not available to U.S. persons, including U.S.-organised entities, or in other restricted regions.