Floating Rate Notes

Floating rate notes are debt instruments with a variable interest rate that adjusts periodically based on a benchmark index. In the crypto ecosystem, these are often implemented through smart contracts that track decentralized lending rates.

They offer investors protection against rising interest rates, as the coupon payments increase when the benchmark rises. For issuers, they provide a way to attract capital in an uncertain rate environment.

These notes are increasingly used in DeFi to create more flexible debt products. They allow for the construction of portfolios that are resilient to interest rate volatility.

Investors must understand the underlying benchmark and how it is calculated. The notes provide a mechanism for managing interest rate risk at the protocol level.

They are an important innovation for decentralized finance. Understanding their structure is key to evaluating the risk and return of DeFi debt instruments.