Five Minutes to Understand Swivel Finance - Fixed Interest Rate Derivatives


Swivel Finance is an interest rate swap protocol built on Ethereum network.

The paradigm in the traditional financial market

Current cash-flow market has been restricted to large institutions and firms. They can benefit from the risk management that they provide. Further, this market is intermediated by large banks who charge significant fees. Swivel plans to shift this paradigm by creating a transparent order book marketplace where everyone could freely exchange cash flow instruments without any intermediate broker.

The solution provided by Swivel

Swivel introduces interest-rate derivatives in the form of tokenized cash-flows by issuing interest-coupons (nTokens), and zero-interest-coupon (zcTokens) so that it can satisfy users with different risk appetite. Let's explain it with an example:
  1. Alice wants to provide 1,000 DAI. She expects an annual interest rate of 5%.

  2. Bob is a speculator and only has 50 DAI. He anticipates the interest rate will be higher than 10% for the next year.

  3. When two of them come to Swivel platform, Alice will spend 1,000 DAI by way of a limit order. At the same time, Bob will buy nTokens when he sees the limit order.

  4. After the transaction is successful, Alice will get 1,000 zcDAI (zcDAI represents the right that Alice can claim principal plus 5% interest after one year) , and Bob will get nDAI equivalent to 50 DAI (nDAI here represents the right that Bob will be able to claim the expected return when bonds matures).

  5. Next, the 1,050 DAI will be deposited into Compound.

  6. After one year, Alice will get a total of 1,050 DAI which is equal to principal plus interest, and Bob will earn the interest premium which is the part higher than 5%.

  7. In this year, Alice's 50 DAI (interest revenue) will be obtained in cash flow (similar to Superfliud payment).

Besides, zcTokens and nTokens can be sold before the maturity date (at discounted price). Swivel satisfies the needs of different users through the above methods. At the same time, the order book is used to increase capital efficiency (compared to AMM). Next, let's take a look at how Element deals with the same problem.

Compared to Element finance

The biggest difference between Element and Swivel is that Element uses AMM to let users buy and sell Principle token (Ptoken) and Yield token (Ytoken). Ptoken here is similar to zcToken, and Ytoken is similar to nToken. Instead, Swivel uses an order book model. Let’s take a look at the difference in operations by using the example of Alice and Bob above. Alice wants to provide 1,000 DAI and expects an annual interest rate of 5%. She needs to spend 1,000 DAI to mint Ptoken and Ytoken (The number of Ptokens is affected by market interest rates, and Ytoken can be determined, in Alice’s example, 1,000 Ytoken). And then Bob will use 50 DAI to buy Ytoken through the Ytoken AMM pool, and there will be transaction slippage (the liquidity in the pool is not enough to make any transactions worth more than 10,000 DAI currently), and then get the expected return after the bond matures. We can tell that the difference is that Alice gets two tokens at the beginning, and then if Alice wants to sell Ptoken or Ytoken before the bond matures, she can do it through AMM. Howvere, there will be a slippage cost for the transaction. Further, Alice can choose to add liquidity to earn extra revenue, but extra DAI is required to become a liquidity provider.

It can be seen from the figure above that the capital efficiency of AMM is quite low. At present, the capital efficiency of the Element AMM model is quite poor. However, it is too early to tell whether the Swivel order book model will succeed or not.

Future product

Swivel is planning to introduce an interesting product, which is tokenization of ETH2.0 staking rewards and MEV.

The figure above shows that MEV is quite volatile, which is similar to the interest rates. Therefore, Swivel can do the same thing here as to the interest rates.

Users with fixed income expectations can deposit ETH on Swivel, and get zcETH which will generate fixed income (The fixed income here includes staking rewards and part of MEV). Users who want to get extra income can purchase nETH which will represent part of MEV on Swivel. The innovation here is to tokenize the MEV, and allow ordinary users to obtain MEV.


On the 10th of December 2020, Seed round 1.15M was led by Multicoin Capital. The round included Electric Capital, CMS Holdings, Divergence Ventures and Defiance Capital.

On the 26th of October 2021, Strategic round raised 3.5M. This round included Multicoin Capital, CMT Digital, IOSG Ventures, Fenbushi Capital, GSR Markets and Okex.


Swivel solves the problem of opaque information, only large institutions, and the existence of intermediaries in the current cash flow market. Swivel issues two different tokens to meet the needs of users with different risk appetite, and uses the order book to increase capital efficiency. Compared to Element, there are fewer operations, no AMM slippage, and no need for additional funds to add liquidity. In the future, Swivel will also launch MEV-related products so that ordinary users can also benefit from MEV. However, the current project is still on the test network, and it is uncertain whether Swivel can achieve the expected results on the mainnet.





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