Duration Gap

A duration gap occurs when the sensitivity of a portfolio assets and liabilities to interest rate changes is mismatched. While more common in fixed income, it applies to derivatives where time-to-maturity influences price sensitivity.

In crypto, this can relate to the maturity of lending contracts versus the duration of staked assets. If the gap is not managed, changes in market conditions can lead to solvency issues.

Managing the gap involves matching the duration of assets and liabilities to neutralize interest rate risk. It is a core concept in asset-liability management.

By keeping the gap within a tight range, firms can ensure that their financial position remains stable. It requires ongoing monitoring and adjustment as the market environment evolves.

The duration gap is a fundamental measure of structural risk.