TermMax Renaissance Weekly Creation Topic is here!

The topic is “In a turbulent bull market, is the rigidity of fixed interest rates a trap for capital efficiency?”

Fixed interest rates seem very stable, but are often questioned in a bull market. First, let's clarify the concept: the so-called rigidity of fixed interest rates essentially transforms interest rate risk from a post-exposure to a pre-priced factor. In a floating rate system, your capital efficiency comes from real-time re-pricing aligned with market fluctuations. Vigorous borrowing demand can push rates higher, lenders may enjoy higher yields, and borrowers can leverage quickly at lower initial costs.

But the cost is that costs are not locked in, and strategies are not fixed. The most common liquidation in a bull market isn’t due to wrong direction, but because the interest rate curve suddenly steepens, health deteriorates passively, forcing poor decisions at the worst times.

So, is rigidity a trap? It actually depends on how you define capital efficiency. If you understand capital efficiency as capturing higher floating yields or lower floating borrowing costs during peak times, fixed interest rates can indeed cause you to miss certain fleeting opportunities. They won’t give you extra benefits at the market’s most euphoric moment because they refuse to tie your returns to uncontrollable crowding and capital inflows/outflows.

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But if you define capital efficiency as how many times you can reuse a unit of risk in a stable manner, fixed interest rates are more like an amplifier rather than a shackle.

The reason is very practical: market volatility in a bull run isn’t just in prices, but also in liquidity. The hotter the market, the easier it is for borrowing demand to spike, liquidity to dry up, and interest rates to fluctuate wildly. In such an environment, floating rate systems act like emotion amplifiers—interest rates can spiral out of control with crowding, forcing strategies to deleverage, liquidate, chase highs, or cut losses. You might think you’re pursuing capital efficiency, but in reality, you’re accepting an unpredictable cost curve.

The advantage of fixed interest rates isn’t higher yields, but making costs manageable variables. Once costs are locked in, you can do more: turn leverage from a fragile, immediate gamble into a structured position with a fixed term, boundaries, and exit paths. Professional funds prefer not just quick gains, but the ability to repeat the same framework a hundred times, with predictable worst-case outcomes each time.

That’s why fixed interest rates don’t necessarily reduce efficiency; they simply shift efficiency from interest rate arbitrage to structural efficiency.

Structural efficiency includes, but is not limited to, reducing the effort spent on monitoring interest rates, chasing windows, or passive rebalancing—significantly lowering friction costs; using clear-term management to turn bull market volatility into exploitable variables rather than uncontrollable threats; and enabling clearer measurement of a strategy’s true returns because costs are fixed, performance attribution is cleaner, and strategy iteration is faster.

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Of course, fixed interest rates are not万能. Their rigidity risks mainly come from two points:

First, is the pricing reasonable? If fixed rates deviate from market equilibrium over the long term, it may lead to one-sided inflows and systemic pressure.

Second, maturity mismatch: if users forcibly fit short-term speculative needs into long-term fixed structures, it can reduce capital turnover.

But these issues shouldn’t be seen as original sins of fixed interest rates; rather, they are design challenges: for fixed rates to succeed, it’s not about hiding volatility but about incorporating it into mechanisms and providing better term tools and risk boundaries.

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Returning to the question: is the rigidity of fixed interest rates a trap for capital efficiency in a bull market?

A more accurate answer is: for speculators, it might be a slight regret of earning a little less; for professional funds, it often means surviving a few more years. True capital efficiency in a bull market isn’t about how fast you run at the peak, but whether you can maintain replicable positions and predictable costs after each crowding, each rate hike, each liquidity reversal.

As markets shift from quick profits to scaled operations, fixed interest rates are not a trap but an order. They push DeFi from emotion-driven lending to discipline-driven capital structures. This isn’t conservatism; it’s maturity!

@TermMaxFi #TermMax #TeamOrder