One Rate To Rule Them All

One Rate to Rule Them All
First published in Singapore in 2024 byTreehouse Analytics Pte Ltd
treehouse.finance© 2024 Treehouse Analytics Pte Ltd

All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form or by any means,electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of Treehouse Analytics Pte Ltd.

eISBN: 978-981-94-0393-6

Contents

1
2
3
4

Prologue05

Introduction: A Digital Asset Benchmark Rate

07

The Smart Contract Theory

12

From Collectibles to Digital Currency

14

Money Printer Goes “Brrrr”

16

Digital Money and Bitcoin

21

The Smart Contract Model25

Fixed Income in Crypto

29

The History of Borrowing and Lending

31

Conventions in Fixed Income

34

The State of Crypto Fixed Income

38

A Spectrum: CeFi vs. DeFi

40

Crypto Risk-Free Rate

45

The “Risk-Free” Case for Crypto

46

Treehouse Crypto Risk Premia Framework

49

The Satoshi Reserve

57

The Nation of Gwei

59

The Treehouse Protocol

65

The Fragmentation of On-Chain Spot Rates

66

tETH: Converging ETH Interest Rates

70

DOR: Decentralized Offered Rates

75

First Application: The Ethereum Staking Rate

84

Conclusion: Perched Above The Dark Forest

89

Epilogue

91

Notes

93

Prologue

In Liu Cixin's science fiction novel The Dark Forest, the ‘Dark Forest’is a chilling metaphor for a universe where intergalactic civilizations

must hide to avoid detection by hostile aliens. In the early days ofDecentralized Finance (DeFi), the term was adopted by online communities to describe the perilous landscape of the blockchain—a realm
where even the slightest misstep can awaken predatory bots that
exploit vulnerabilities at any instance.
The term also inspired the name of one of Ethereum’s earliest
games in 2019 and was subsequently mentioned in Paradigm’s 2020
medium article “Ethereum is a Dark Forest.” During my time at Morgan
Stanley, ‘Dark Forest’ even made its way to the trading floor, serving as
the code word for DeFi among a group of crypto enthusiasts.
Amidst the chaos of the 2020 DeFi summer, a group of friends andI, coming from both web2 and traditional finance, connected over our
passion for crypto. Frustrated by the lack of solutions, we took matters
into our own hands and developed our own Portfolio Management
System (PMS) to track our positions. Recognizing the value of oursystem, we launched Treehouse—a name symbolizing a safe haven for
crypto traders navigating the ‘Dark Forest.’ Through several iterations,
our tool evolved into one of the world’s most sophisticated on-chain
5

risk analytics systems, capable of querying any wallet’s historical data
and risk attribution across 400 protocols.
The past four years have been fruitful and hectic for Treehouse.
Fruitful—as the firm grew to over 70 employees, raised $18 million incapital, and integrated over thirty data widgets into Hyperion, ourinstitutional platform. Hectic—as we blitzed the space as one of thefastest growing infrastructure start-ups, experienced the growing painsof scaling, and weathered numerous crises. In 2022, the fall of industry
titans like LUNA and FTX cast a heavy cloud over an industry alreadybattered by inflation and tightening policy. Few foresaw this, andcertainly not at the speed and scale. The drastic collapse drove many
institutions away from crypto over the past two years, making it toughfor digital asset companies. Despite the challenging environment, we
saw an opportunity. At the core, Treehouse’s mission is to build crypto
infrastructure. In the aftermath of the market’s tumult, we set out toaddress one of the most critical issues in the cryptocurrency market
today—the absence of reference rates.
This book serves as the thesis for the Treehouse Protocol, ourimplementation of Treehouse Assets (tAssets) and Decentralized Offered Rates (DOR). It is also a direct call for readers to join us in shaping a
new digital asset ecosystem. Taking inspiration from political philosophy, traditional finance, and the principles of trust-minimization,
One Rate To Rule Them All makes the case that a decentralized crypto
benchmark rate can help to mature the digital asset financial markets
and provide a springboard for meaningful institutional adoption. Part
1 focuses on the philosophical and historical context leading up to theadvent of blockchain, while Part 2 dives into the current state of fixedincome in crypto. Readers interested in the concepts of ‘risk-free’ incrypto and the Treehouse Protocol may directly jump to Parts 3 and 4
or to the technical paper.

6

Introduction
A Digital Asset Benchmark Rate“

Even in this slightly less ambitious form – acting as an innovative irritant
to incumbents and traditional technologies – cryptocurrencies and blockchain
technology have already prompted real change and can continue to do so.
— Gary GenslerF

ew innovations today rival the transformative potential of blockchain, yet adoption of the technology has been slow due to its

inherent complexities. Since Bitcoin’s founding in 2009, however,significant steps have been taken to reduce these technical barriers.
One of the earliest breakthroughs in accessibility was the Grayscale
Bitcoin Trust (GBTC). Launched in 2013, GBTC pioneered blockchain
investing through the structure of a closed-end unit trust, one recognizable to the average investor. Within four years, the trust successfully amassed over $1 billion in assets under management (AUM). At
the same time, Venture Capital (VC) interest surged, fueling adoption in
the mid-to-late 2010s by funding innovations that laid the foundationsof digital assets like Ethereum and Centralized Exchanges (CEX).

7

Despite the remarkable progress in institutional adoption, retailinvestors continue to dominate crypto activity up to this day. Many
important eras in the industry, such as the 2017 Initial Coin Offering(ICO) frenzy and the 2020 DeFi summer, were primarily fueled byretail participation. Although the landscape is evolving, institutional
involvement has remained relatively subdued; entry and timing into themore esoteric parts of the sector remains uncertain. For the early few
that have entered the space, the focus has gravitated towards the moreestablished and perceived safer facets of the technology, such as RealWorld Asset (RWA), Layer 2 (L2) infrastructure, and Zero-Knowledge(ZK), among others. Still, questions persist regarding the catalyst needed to breach the institutional threshold.
So far, the financial innovations witnessed in blockchain haveclosely mirrored the evolution of its traditional finance counterpart.
Just as cash products like physical commodities and equity spot
trading were among the first traditional finance innovations, spot
trading emerged as the first offering in crypto. Similarly, derivative8

products like futures and options were relatively recent developments
in traditional finance, and crypto markets have followed a similar
trajectory, albeit at a much faster pace. But beyond these instruments,
what could be the next possible leg of growth for the industry?

In the first half of 2024, institutional interest in Bitcoin surged,
setting record inflows for the asset largely driven by the approval of
Bitcoin Exchange Traded Funds (ETFs). However, expectations for institutions to expand their focus beyond benchmark cryptocurrencies in
the near term remain modest. Deeper and more speculative segmentsof the technology, such as DeFi, are likely to be approached cautiously,
if at all.
The flow of capital in greenfield investments typically starts
from low to high beta, and the reality in crypto today is that institutions are only at the early stage where they are beginning to turn their9attention from Bitcoin to Ethereum, the second largest digital asset. In
anticipation of its own ETF approval, this flow of new capital would
invariably open the door to institutions seeking opportunities for ‘riskfree’ returns on both assets, with fixed income emerging as the next
logical step in institutional blockchain adoption.
Despite being one of the most important innovations in society,fixed income in crypto is still in its infancy compared to the traditional
finance universe, where it reigns as the largest investable asset class—valued at over $620 trillion, six times larger than the equities market.
In crypto, fixed income remains disproportionately underrepresented,
with limited venues for retail investors and even fewer options for
institutions to deploy capital meaningfully. In our view, the primarychallenge to its growth is the absence of a consensus benchmark rate,a fundamental component of financial markets.
To unlock the fixed income market for digital assets, our teamdeveloped two new primitives over the past two years. First, tETH, aliquid restaking token (LRT) to converge the fragmented ETH interest
rate on-chain markets. Second, the Treehouse Protocol, a decentralized
consensus mechanism for benchmark rate setting that introduces
Decentralized Offered Rates (DOR). With tETH and DOR, we foresee a
Cambrian explosion of new fixed income products emerging in digitalassets, heralding a new era in cryptoeconomics.

10

11

1
The Smart Contract Theory“

Man was born free, and he is everywhere in chains.
— Jean-Jacques RousseauTo understand how blockchain can reshape the world, we need tostart with the origins of society. Among the theories, one of themost widely cited is Social Contract Theory. The Greek philosopher
Socrates first expounded on this concept in 400 B.C., notably expressedin Plato’s work Crito. Despite facing the death penalty in Athens,
Socrates upheld the authority of the state’s legal system, viewing hiscompliance as part of an implicit contract forged with Athens, demonstrating his commitment to the collective good that transcends his
personal interests.
It was only in the 16th and 17th century that Social Contract
theory resurfaced through the works of philosophers like Thomas
Hobbes, John Locke, and Jean-Jacques Rousseau. They each postulated various theories yet agreed that the social bonds formed between
individuals made society possible. Like Socrates, Hobbes envisioned
12

One Rate To Rule Them All

Part 1The Smart Contract Theory

the Social Contract as an inherent choice. If humankind wanted todepart from the brutish State of Nature—a hypothetical world where
humans lived in pure self-interest—we needed to abide by a Social
Contract. Hobbes imagined the original cavemen forming rudimentarysocial norms, like refraining from violence, as the catalyst for the
beginning of civilization.
Locke later expanded on Hobbes, presenting the Social Contract
as the foundation for centralized government, influencing later political ideologies and even the founding of the United States. Similarly, Rousseau argued that society, by its nature, restricts individual
freedom, but this restriction was necessary for the greater good andthe protection of all members. His emphasis on the importance of
popular sovereignty and the collective will of the people continues
to resonate in debates about the nature of political authority and theprinciples of governance up to this day. As society evolved, thesefoundational principles morphed into explicit contracts, underpinning complex modern-day systems like money, legal frameworks, andgovernments today.
As we will explore, the emergence of Smart Contracts, enabledby blockchain technology, represents an evolutionary upgrade to
the Social Contract. For the first time in history, programmatic code,
supported by decentralized consensus mechanisms, can be used
to supplant traditional societal contracts such as those governingmodern-day government and currency: a new paradigm. As we will seein the subsequent sections, this is best showcased in how blockchain
technology has reshaped society’s understanding of money.

13

One Rate To Rule Them All

Part 1The Smart Contract Theory

From Collectibles to Digital Currency“

Well, Senator, a billion dollars just ain’t what it used to be.
— Nelson Bunker HuntT

he progression from the State of Nature to the creation of money
reflects humanity's quest for efficiency and trust in economictransactions. Initially, the first humans relied on bartering to fulfill
individual needs. Each specialized in different tasks and found reciprocity in trading goods and services through a social economy (read:
contract). People carried on with their business, trading with neighbors
and friends, but soon discovered its limitations. For barter to work,
all parties needed to desire what the other possessed at the point oftrade, a phenomenon known as the ‘double coincidence of wants.’ For
example, for Wojak to trade for Derp’s unicorn, Derp needed to coincidentally want something of corresponding value from Wojak. This
meant that viable trades often failed despite benefiting both parties.
Due to the inefficiencies that arose from barter, communities
took forms of scarce and recognizable goods as universally accepted14One Rate To Rule Them All

Part 1The Smart Contract Theory

mediums of trust and convertibility, thus laying the first foundationof money. Initially, these goods, or commodity money, represented
value and fostered efficient trading through the shared trust in theindividuals using them. Over thousands of years, money evolved—
from collectibles to inert metals, coins, and paper, and, more recently,
through digital representations.
While money stands as one of humanity's most significant Social
Contracts, not all money is created equal. Aristotle delved into this
topic as early as 340 B.C. in Nicomachean Ethic, where he outlined thecharacteristics of sound money: durability, transferability, divisibility,
fungibility, scarcity, and recognizability. The modern definition, articulated by the economists William Stanley Jevons and Karl Menger
in the late 1800s, emphasized money’s essential features as a store ofvalue, medium of exchange, and unit of account. In essence, ‘good’money must endure, facilitate transactions effortlessly, and provide
clear denominations for accounting purposes.
The pursuit of sound money is an exercise in optimization, and noleading currency has ever managed to embody all desirable attributes
perfectly—not even the mighty U.S. Dollar. While the Dollar is durable,transferable, divisible, fungible, and recognizable, it is hardly scarce.
Even in the unlikely setting of a prison cell, for example, cigarettes act
as the better form of money for their durable, usable, and transferable
features within the confines of a prison. However, like most widelyused currencies throughout society, most face the same drawback—demanding either the trust in a physical form or the ceding of power toa centralized body.

15

One Rate To Rule Them All

Part 1The Smart Contract Theory

Money Printer Goes “Brrrr”“

History has shown us that we shouldn’t rely on governments to protect
us financially. On the contrary, we should expect most governments to abuse
their privileged positions as the creators and users of money and credit for thesame reasons that you might do these abuses if you were in their shoes.
— Ray DalioA

fter two decades, the United States’ presence in Afghanistan cameto an abrupt end. Within twenty-four hours, the Taliban returnedto the streets, overthrowing Kabul with little to no resistance. In termsof expenditure, the United States government poured an astonishing$2.313 trillion (for visualization purposes: $2,313,000,000,000) into theconflict over a span of twenty years, averaging $300 million per day.
Such monumental spending deserves reflection. How do governments
worldwide finance such large-scale operations? Spoiler: the modern
monetary system.
After a series of financial panics and scares, President Woodrow
Wilson signed the Federal Reserve Act in 1913 to centralize the U.S.
16

One Rate To Rule Them All

Part 1The Smart Contract Theorybanking system. Prior to this reform, private banks were responsible forprinting the U.S. Dollar, issuing bank notes backed by precious metals.
At its peak, several thousand private notes were in circulation, leading
to frequent bank runs as the trust placed in these institutions was often
misguided. The establishment of the Federal Reserve System aimed torectify these issues. It was tasked by Congress to achieve three objectives for the people of the United States: to maximize employment,
maintain stable prices, and moderate long-term interest rates. With
these noble goals, the Fed set out in good spirit to pursue monetary
policies over the years—protecting and bolstering its economy andcitizens. In periods of financial duress, the Fed stepped in, combating
economic stress and restoring the market to normalcy.
However, while the Fed’s ability to cushion financial crises wasgood, its tools were also susceptible to misuse. By the 1970s, the UnitedStates government found itself in deficit amidst the Vietnam War andneeded to sustain its spending. This was facilitated by borrowing
money, essentially from itself. With the Bretton Woods system in placesince World War II, an agreement made between forty-four nations
to back the convertibility of gold to the U.S. Dollar, the government
soon found itself printing more money than its gold reserves. Other
nations saw the cracks in the Bretton Woods system and exited byconverting their U.S. Dollar to gold. To ‘save’ the Dollar from a deathspiral (LUNA, anyone?): President Nixon abandoned the gold standard
in 1971, thereby turning the U.S. Dollar into fiat money. As the verytranslation of the Latin word ‘fiat’ suggests, fiat money had intrinsic
value, ‘by faith,’ or just because.
While off-putting, this practice by the U.S. government madesense. When policymakers have unlimited money printers at theirdisposal to appease angry citizens, they simply keep “brrrr”ing. The
same scenario usually plays out whenever policymakers need tointervene in crises—kicking the can down for the next nominee to17Part 1One Rate To Rule Them All

The Smart Contract Theory

worry about. Over the past forty years, this pattern unfolded during
the Latin Debt Crisis, U.S. Savings and Loans Crisis, Russian Debt Crisis, Asia Financial Crisis, Subprime Mortgage Crisis, and the 2012 Taper
Tantrum, to name a few.

The Policy TrilemmaCountries grapple with the policy trilemma as a result of the country’s
exchange rate, monetary policy, and foreign capital flow being intricatelyintertwined. The trilemma concept posits that monetary authorities can only
control a maximum of two out of the three factors, rendering attempts tomanage all three futile.

For instance, the Republic of Singapore maintains control over its exchange
rates while welcoming capital flows. If the government decides to ease its
monetary policy by reducing interest rates, this would trigger an outflow offoreign capital seeking higher returns elsewhere, leading to a corresponding
decrease in demand for the Singapore Dollar and making the government’s
efforts to control their exchange rate ineffective.

18

One Rate To Rule Them All

Part 1The Smart Contract Theory

In navigating the policy trilemma, nations worldwide adopt varying policy
approaches tailored to their economic contexts. The United States, forexample, prioritizes independent monetary policy and unrestricted capital
flows over fixed exchange rates. This strategic alignment reflects the intricate
balance countries strive to achieve amidst the complexities of the global
financial markets.

For obvious reasons, the scenario described above is far from
ideal for citizens who quickly witness the value of their currencies
depreciate. All of a sudden, the cafe down the road that used to sellcoffee for $2.80 now demands $4.70. But this is not a problem of the past:nearly 80% of all U.S. Dollars in circulation today were printed within
the past four years. The magnitude of the problem is staggering: theU.S. Dollar ‘M1’ money supply, a key metric tracked by the Fed, surged
to an all-time high of $20.6 trillion in March 2022—a fourteen-foldincrease compared to January 1959. Moreover, the U.S. national debt
now stands at a daunting $34.5 trillion, analogous to a medium-income
family spending $20,000 more than its $70,000 annual income whilealready being $470,000 in debt.
Regrettably, this is not a problem unique to the U.S. History islittered with cases of governments resorting to printing money to coverdeficits, which in turn causes spiraling inflation. Examples abound.
Hyperinflation can be traced back to recent occurrences in countries
like Zimbabwe in 2008, Germany in the 1920s, the French Revolution in
1795, China during the Yuan dynasty (1271-1368), and ancient Rome.
While history does not always repeat itself, it often rhymes.
Persistent government debt woes frequently lead to currency devaluation, triggering capital flight. Governments naturally try to intervene:
in some cases, they block the movement of capital entirely; in others,
19One Rate To Rule Them All

Part 1The Smart Contract Theory

they indirectly make it harder to move wealth abroad, like banninginvestments in gold (or Bitcoin!). Policymakers have proven time andagain to be unequipped to resolve the issue of spiraling debt, akin to
the breaching of its Social Contract with its citizens.
Today, the U.S. Dollar remains the world’s reserve currency, serving as a bastion against capital outflows and maintaining global faith
in its system, bolstered by its economic prowess and, at times, geopolitical influence. Satoshi Nakamoto and his predecessors recognized
the inherent flaws in centralized systems and diligently worked todevelop an alternative solution.

20

One Rate To Rule Them All

Part 1The Smart Contract Theory

Digital Money and Bitcoin“

The root problem with conventional currency is all the trust that’s required tomake it work. The central bank must be trusted not to debase the currency, but
the history of fiat currencies is full of breaches of that trust. Banks must be trusted
to hold our money and transfer it electronically, but they lend it out in waves ofcredit bubbles with barely a fraction in reserve. We have to trust them with
our privacy, trust them not to let identity thieves drain our accounts.
— Satoshi NakamotoWhile money was a philosophical advancement for society,
Bitcoin is a technological advancement for money. Born in 2009,

Bitcoin’s concepts draw upon decades of cryptographic research. Its
roots trace back to 1992, out of a mailing list of members known as
the Cypherpunks, a remarkable community of individuals united bya shared concern over government overreach and digital censorship.
The Cypherpunks were not just any group of cryptographers, however;dozens of its members would later go on to shape many critical computational discoveries—among them were industry visionaries like Marc
Andreessen, the founder of SSL and HTTPS.
21

One Rate To Rule Them All

Part 1The Smart Contract Theory

Recognizing the importance of privacy and autonomy in communication, the Cypherpunks embarked on developing a digital economy
and currency, spurred by David Chaum's groundbreaking work on
DigiCash in the 1980s. Back in 1985, Chaum put forth a dissertationon the first known blockchain protocol. While the company wentbankrupt in 1998, its technology was revolutionary for its time, leaving
a lasting imprint as the first payment system capable of enabling
anonymous transactions.

E-gold: a digital attempt
Notably, the Cypherpunks were not the only ones building digital money. In
1996, Douglas Jackson and Barry Downey founded e-gold, a digital currency
backed by gold coins. By 2009, e-gold had over five million unique users,
but services were abruptly stopped when the U.S. government accused it ofmoney laundering and the unlicensed operation of a money-transmitting
business. The company ultimately went into a plea deal that required it toimpose Know-Your-Customer (KYC) rules but had to shut down shortly after
as it never got their licensing approval from the government.

Over the years, the Cypherpunks launched many other projects:
MojoNation, a peer-to-peer payment system for distributed file sharing, Magic Money, and GhostMark, among others, but none really tookoff. Despite early setbacks, the Cypherpunks learned they needed to
avoid both centralization and collateralization for their vision of digitalmoney to work.
Three of the more critical Cypherpunk initiatives that laid
the groundwork for Bitcoin were Hashcash by Adam Back in 1997,
b-money by Wei Dai in 1998, and BitGold by Nick Szabo in 2005.
Hashcash aimed to make email spam costly and resembled something
like Bitcoin's Proof-of-Work (PoW) system; b-money and BitGold
22

One Rate To Rule Them All

Part 1The Smart Contract Theory

were only proposed in theory, but both used methods of distributing
contracts among networks. Satoshi Nakamoto, the creator of Bitcoin,drew inspiration from these predecessors, even citing the latter two
on the original Bitcoin website. In fact, prior to launching Bitcoin, hesought Wei Dai’s help in reviewing his code. Then, on January 3rd,
2009, the first Bitcoin was mined.
Upon its launch in 2009, Bitcoin fell short of its most passionate
supporters. It created, however, the first known trustless decentralized
medium of exchange. Satoshi was keenly aware of the delicate balance
required for the system's success and deliberately advocated for
gradual adoption. When WikiLeaks proposed using Bitcoin as a form ofdonation on its website in 2010, Satoshi objected, stating: “The projectneeds to grow gradually so the software can be strengthened along theway [...] Bitcoin is a small beta community in its infancy. You would notstand to get more than pocket change, and the heat you would bringwould likely destroy us at this stage.”
Satoshi realized that for Bitcoin to be fully decentralized, heneeded to disappear. In one of Satoshi’s last emails, he, she, or it writes:"[I’ve] moved on to other things [...] It's in good hands." As Bitcoin
gained traction, governments and regulatory bodies began expressing
concerns about its disruptive potential, leading to various attempts
to regulate or curb its usage—in 2013, the U.K. tax authority classified
Bitcoin as private money, and nations like China have banned Bitcoinand crypto on at least nineteen occasions.
Over the years, adoption grew nevertheless, seeing the cryptocurrency develop many of Aristotle's attributes of sound money andmore. The Cypherpunks knew this all too well, as even the export ofencryptions with more than 40 bits was banned and treated by the U.S.
government as ‘munition’ until 1996 (encryption that could be easily
brute-forced with any standard computer today).
23

One Rate To Rule Them All

Part 1The Smart Contract Theory

Despite regulatory hurdles, Bitcoin's inherent nature ensured
its resilience, echoing the Cypherpunks' vision of a currency beyond
government control. Over time, Bitcoin flourished, as it simply could
not be banned given its decentralized property: an attribute no otherform of money had ever possessed, a concept overlooked by the great
philosophers of past centuries.
On a technical level, Bitcoin successfully addressed the Byzantine
Generals’ Problem—a critical game theory problem that describes how
difficult it is for dispersed parties to reach consensus without a trusted
central authority. Yet, Bitcoin's defining characteristics extend beyond
this achievement. Among others, Bitcoin is open-source, allows pseudonymity, and holds all of the attributes of Aristotle’s sound money, withthe exception of recognizability today. Tyler Winkerwoss, the founderof Gemini, underscored these points in his essay “The Case for $500K
Bitcoin.” In it, he compared Bitcoin to gold and the U.S. Dollar, demolishing the latter two in a challenge of scarcity, durability, portability,
divisibility, counterfeitability, and security.

24

Part 1One Rate To Rule Them All

The Smart Contract Theory

The Smart Contract Model“

Bitcoin is great as a form of digital money, but it's scripting language
is too weak for any kind of serious advanced applications to be built on top.
— Vitalik ButerinA

few years after Bitcoin’s founding, a quirky and mathematically
inclined individual by the name of Vitalik Buterin would frequent

many of the Bitcoin conferences. Recognizing the need for a programmatic language to unlock the full potential of blockchain applications,
Vitalik founded Ethereum, introducing the revolutionary concept ofSmart Contracts to the world.
While Bitcoin created the first decentralized money, Ethereum
created the first decentralized framework, proliferating the creation of
all things: decentralized. Repicture Hobbes' State of Nature, but transposed into the digital realm: After previously only being able to barterfor computer bits, the digital cavemen living now have digital money totransact. In the same vein, Ethereum’s emergence parallels the establishment of a digital society governed not by Social Contracts but by25

One Rate To Rule Them All

Part 1The Smart Contract Theory

programmatic code.
Enabled by the Smart Contract, Ethereum fosters a trustless digital society where participation is voluntary and incentivized, freefrom coercive enforcement. Unlike traditional systems governed bycentralized authorities, Ethereum allows its users to shape their own
contracts through code without reliance on intermediaries.
At its core, Ethereum enables society to take out centralized intermediaries, often the Achilles' heel of many governance systems today.
With it, blockchain can now enable not only money but also infrastructures such as storage (Filecoin), market-making (Uniswap), andbeyond. When governed effectively, the benefits can be long-lasting,as seen in trailblazers like Maker and Compound.
In recent years, the adoption of blockchain and Smart Contracts
in different domains has blurred the lines between individuals, institutions, and states—fostering an equal playing field where stakeholders
adhere to a shared framework of rules while retaining the freedom toparticipate at will. Without a doubt, the advent of Smart Contracts
represents the evolution of the Social Contract, offering a decentralized
alternative to traditional governance.
In light of these advancements, we present a generic SmartContract Model inspired by Social Contract philosophy to explain how
Smart Contracts can facilitate decentralization in domains such as
trading, governance, and, as we will see, fixed income.

26

One Rate To Rule Them All

Part 1The Smart Contract Theory

General Model of The Smart Contract
Statement: N selects the mechanism for D to enforce R within M. By participating, N* implicitly supports D, which compels both N* and N to adhere to R.
Where,• D: A dynamic device of representation (e.g., the smart contract/code
dictating R).
• M: The deliberative setting in which D enforces rules, principles, or
norms (i.e., R).
• N: Individuals serving as representative choosers in the "device ofrepresentation," also known as model choosers, determining how D
operates (e.g., those who write the code).

• N*: Individuals whose interactions are governed by the contract/
agreement specified by D, with a stake as model choosers to influence• R according to the mechanisms outlined by D.
• R: Rules, principles, or norms dictated by D.

The Smart Contract Model introduces additional layers of implementationcompared to the Social Contract. Utilizing D, an autonomous device of representation (the Smart Contract), both N and N* are obliged to adhere to R,
dictated by D according to the mechanisms chosen by N, which can also be
influenced by N*. Post-implementation, N* gains the ability to influence D to
the same extent as N. Consequently, both N* and N share eventual responsibility in implementing R as dictated by D. The setting (M) determines how D
implements R based on the mechanisms initially chosen by N.

27

One Rate To Rule Them All

Part 1The Smart Contract Theory

In this model, individuals participating in the contract, whether initially N* or
N, are no longer viewed as distinct from each other. Each participant holds anequal stake in influencing R based on the mechanisms outlined by D. D, theSmart Contract, and by extension, R, remain independent of other rules (R’)
set by additional model choosers (N’), such as legal systems, fiat conventions,or nation-states.

Both the Social Contract and Smart Contract acknowledge a higher authority
or government, enabling societal functioning and appealing to Contractualist
and Contractarianism principles. The paradigm shift in crypto lies in SmartContracts' potential to serve as sovereign governing bodies. While blockchain
technology has limitations, it can significantly improve outdated systems andconventions, such as those in the financial sector. Our implementation of theTreehouse protocol aims to establish a new social order catalyzing the digitalassets fixed income market.

28

2
Fixed Income in Crypto“

Bonds as an asset class will always be needed, and not just by
insurance companies and pension funds but by aging boomers.
— Bill GrossIn Part 1, we explored a theory on the origins of money, proposingthat society’s adoption of money arose from the inefficiencies ofbartering. While other theories exist—some historians assert thatcredit, rather than barter, was the primary catalyst for the creation ofmoney. Regardless of which theory one subscribes to, the introductionof credit, or the economic act of future favors, marked a pivotal momentin human history. With credit, individuals, businesses, and governments could borrow, facilitating increased spending, while lenders
could earn returns on underutilized assets. This simple dynamic has
solidified fixed income as a cornerstone of today’s financial markets—surpassing real estate and overshadowing both the equity andcommodity markets, ranking it as the largest investible asset class in
traditional finance.

29

One Rate To Rule Them All

Part 2

Fixed Income in Crypto

As the title of this chapter suggests, Part 2 now delves into fixedincome, the sector encompassing all investable assets classified as‘risk-free’ and yield-bearing, hereon referred to interchangeably as'credit,' 'debt,' ‘bond,’ ‘interest rates’ or 'borrowing and lending.' Before
diving into the topic, let us briefly review the history of fixed income.

30

One Rate To Rule Them All

Part 2

Fixed Income in Crypto

The History of Borrowing and Lending“

Bond people pose the same problem to a cultural anthropologist
as a non-literate tribe deep in the Amazon.
— Michael Lewis

E

vidence of fixed income in historical records has been sparse,
suggesting it may be a more recent phenomenon. Nonetheless,borrowing and lending likely existed since the earliest days of civilization, facilitated by reputational considerations and social reper-

cussions within simple communities. If a caveman failed to returnsomething of meaningful value, for example, the fear of getting
sucker-punched by a neighbor was likely enough motivation to workon repayment. When scaled to the global economy, however, Social
Contracts upholding the levees of credit become considerably morechallenging to enforce, necessitating more explicit forms of contracts
for the efficient functioning of the global debt markets.
While the concept of debt and financial agreements likely
predates recorded history, the earliest known bond dates back to
31

One Rate To Rule Them All

Part 2

Fixed Income in Crypto

2400 B.C. in Nippur, Iraq, where corn was used as currency. In ancient
times, gain served as a common medium for loans, allowing borrowers
to practically use what they borrowed to yield crops as repayment.
By 1700 B.C., silver had supplanted grain as Mesopotamia’s preferredmedium of exchange. Due to its underlying nature, however, silverloans were problematic for the early borrowers. Unlike grain, silver
metal could not directly yield more silver. In an effort to keep the credit
markets functioning and to properly serve the complex needs of theeconomy, the 6th king of Babylon stepped in and issued a decree tocentralize the price and borrowing rates of silver, establishing the first
known interest rate convention in society.

From there, innovations in fixed income evolved gradually overcenturies, with significant developments emerging around 300-400
B.C. In India, innovation took the form of letters of credit, facilitating
sea-borne trade by insuring loans through third-party entities. Greece
followed suit by pioneering collateralized loans, credit secured byunderlying assets liable for seizure in the event of default. Later, in the32

One Rate To Rule Them All

Part 2

Fixed Income in Crypto

12th century, the first government loan was issued, marking a significant shift in financial history. Once government debt was established,
it became the largest driver of the debt capital market, notably due tothe hefty cost of wars—starting from Venice's prestiti in the 1100s, theBank of England's first loan in the 17th century, to the issuance of thefirst U.S. Treasury bonds in 1917.
As recently as 2000 to 2007, the global fixed income market
doubled in size, attributing its growth yet again to governments printing
money to fund various projects. Today, nearly 60% of the global bondmarket consists of government debt. Underlying this development, theestablishment of many market conventions in fixed income that was
key to facilitating these periods of expansion.

33

One Rate To Rule Them All

Part 2

Fixed Income in Crypto

Conventions in Fixed Income“

It all comes down to interest rates. As an investor, all you’re doingis putting up a lump-sum payment for a future cash flow.
— Ray DalioEver seen the mountain of legal covenants and disclaimers on an
investment prospectus and decided to read it cover to cover? Most

people’s answer would be no, the same reason that most bond portfolio
managers—even those at the largest asset management firms—do nothave the time to read the prospectus of every bond they purchase.
Despite their length, each page in these prospectuses serves an important purpose in ensuring the modern fixed income market operates
efficiently—painstakingly built by years of legal precedent and fundamentally backed by the same implicit and explicit contracts discussed
in Part 1.
Consider a transaction involving a USD fixed income Tesla bond:all parties—the market maker, buyer, seller, and issuer—must collectively agree to the convention of pricing the bond as a spread over the34

One Rate To Rule Them All

Part 2

Fixed Income in Crypto

closest active USD treasury bond, also referred to as the USD ‘risk-free’rate (RFR). Whether the U.S. treasury bond curve is truly ‘risk-free’ ornot (instances of near-default have occurred in recent years), it is as
close to ‘risk-free’ any rate can get. Why? Because the U.S. government
has the exclusive authority to print USD, and any resulting government
default would precipitate larger, more systemic issues for society toworry about. Why assume the risk of Tesla, Inc. for any lower yield thanthe bond of the U.S. government when the U.S. government should
inherently be safer? Or, put simply, why worry about the risk of default
for Tesla in the apocalyptic event that the monetary system underpinning the U.S. government fails?
This convention holds global respect—USD-denominated fixedincome instruments reference the U.S. treasury rate, while fixed income
instruments in other currencies reference their respective government
bond curves.

35One Rate To Rule Them All

Part 2

Fixed Income in Crypto

Beyond ‘risk-free’ rates, the use of third-party private rating
agencies is another widely accepted centralized convention in the fixedincome market. Moody’s, S&P, and Fitch have cemented themselves as
the de facto arbiters of creditworthiness today. As of June 2024, these
institutions rate the U.S. government as Aaa (AAA) by Moody's, AA+ by
Fitch, and AA+ by S&P Global Ratings, whereas Tesla, Inc. is rated lower
at Baa3 by Moody's, BBB by Fitch, and BBB by S&P Global Ratings.
It is no market secret that rating agencies often react retrospectively to changes in creditworthiness and that the subprime mortgage
crisis was partly driven by these agencies inflating the ratings ofworthless bonds (a key driver that led to the Global Financial Crisis).
Despite these shortcomings, investors, banks, and funds all over theworld still heavily rely on these ratings.

36

One Rate To Rule Them All

Part 2

Fixed Income in Crypto

The conventions do not stop here; fixed income history is richwith social and more explicit conventions, from market hours, quoteconventions, and tick size to mandated settlement processes. The same
principles extend beyond finance, too—societal systems worldwide
rely on the collective trust in conventions to function. While nowhere
perfect, as history has repeatedly shown, these standards are accepted
as bearers of trust because society has embraced standardization for
its role in enhancing productivity, efficiency, and convenience—key
factors that have allowed the debt capital market to flourish.

37

One Rate To Rule Them All

Part 2

Fixed Income in Crypto

The State of Crypto Fixed Income“

Is a fixed income not a good thing?
Does not everyone love to count on a sure thing?
— Karl MarxT

he current state of crypto fixed income can be effectively understood by comparing it to its traditional finance counterpart. While

the verdict is clear (spoiler: crypto fixed income is still underdeveloped), the exercise is nevertheless useful.

A. Size
From a size perspective, both asset classes sit on different scales.
Perhaps due to a several-thousand-year head start, one has a market
value of over $600 trillion, while the other sits in the low double-digit
billions. No prizes here for guessing which is which!

B. Product Innovation
What crypto fixed income lacks in size, it makes up for it in innovation.
While limited mainly to products like overcollateralized loans or38One Rate To Rule Them All

Part 2

Fixed Income in Crypto

bilateral agreements, the former has been able to decentralize key
aspects of the credit process, such as codifying clearing houses andenabling peer-to-peer (P2P) lending. Furthermore, the growth in crypto fixed income has been rapid, jumping through the product life
cycles in months—the equivalent to centuries in traditional finance.

C. Volume and Liquidity
Inherently tied to its size, volume and liquidity for crypto fixed income
products are tepid at best and monstrous for traditional finance. Consequently, pricing in the crypto space is fragmented, with most open
interest bilateral in nature with little to no institutional participation.

D. Influence
Traditional finance fixed income is primarily governed by central
banks and market dynamics. Crypto fixed income, in contrast, has noone-size-fits-all answer due to the diverse range of instruments and theabsence of uniform standards.

39

One Rate To Rule Them All

Part 2

Fixed Income in Crypto

A Spectrum: CeFi vs. DeFi“

You have to understand decentralized finance, because it will be disruptive,
and it very well may disrupt our industry, in our business in particular.
— Daniel IvascynAs previously highlighted, the adoption of fixed income within thecrypto space has been slower compared to other asset classes.

This delay primarily stems from the absence of essential infrastructure
and the current limitations of Smart Contracts, challenges that the
Treehouse Protocol was built to address. Despite these hurdles, participants still engage in borrowing and lending activities today, albeit
in a more restricted manner compared to traditional finance and theother crypto asset classes. Within crypto, fixed income products can
be classified along a spectrum based on their degree of centralization.

40

One Rate To Rule Them All

Part 2

Fixed Income in Crypto

A. CeFi Fixed Income
The centralized approach to crypto borrowing and lending mirrors
traditional finance practices grounded in legal precedents. Examples
include market-makers, credit books, or hedge funds engaging inborrowing and lending with projects or one another through legal
term sheets. Instruments that fall into this category encompass simple
margin borrowing on CEX and over-the-counter (OTC) agreements
between counterparties. Currently, the majority of crypto centralized
fixed income transactions are bilateral in nature, characterized byunstandardized pricing. This setup resembles the ancient Mesopotamian market discussed in the previous section, where interest rates
negotiated between parties follow the simple model of: "willing buyer(borrower), willing seller (lender)."“CeDeFi,” a hybrid under the façade of blockchain
Various fixed income instruments in crypto exist that hold properties ofboth sides of the spectrum. Under the hood, these agreements primarily relyon the same legal contracts and terms dictating our vanilla Tesla, Inc. bondexample despite living on the blockchain. Maple Finance, for instance, uses

41One Rate To Rule Them All

Part 2

Fixed Income in Crypto

the blockchain to facilitate the settlement of unsecured and secured loans tomarket-makers and hedge funds. For their credit model to work, Maple still
depends on centralized bankruptcy remote brokerage accounts and prime
brokers. In the event of default, such as Orthogonal Trading’s failure to repay
an unsecured loan in late 2022, Maple pursued recovery through traditional
off-chain methods, including legal recourse.

B. DeFi Fixed Income
Instruments that predominantly operate on-chain, facilitated by SmartContracts algorithmically defined by the interaction between loan
demand and fund supply. Overall, the segment subsists in limited andfragmented ways, where the majority of instruments are restricted tosimple agreements that can be facilitated as efficiently as in CeFi or
traditional finance. At least until strong market conventions are established, the adoption of more complex on-chain credit systems like
unsecured and under-collateralized lending remains distant.
Presently, the DeFi fixed income landscape is dominated by two primarymodels: Collateralized Debt Position (CDP) platforms like MakerDAO
and lending protocols like AAVE. These platforms employ an over-collateralization model, with Smart Contracts acting as a decentralized
clearing house. In the event of borrower default, sufficient collateral isheld in escrow within the Smart Contract to cover the lender's losses,
mirroring the historical evolution from trust-based credit systems to
the over-collateralized model seen in traditional finance.

42One Rate To Rule Them All

Part 2

Fixed Income in Crypto

Case in Point. AAVE
Consider the largest on-chain borrowing and lending protocol AAVE: as of
May 2024, lenders of the protocol’s most liquid asset, ETH, receive 1.74% perannum (p.a.), while borrowers incur a variable 2.55% p.a., suggesting a mid-rateof 2.145% p.a. for ETH.

This contrasts sharply with traditional finance fixed income, where the spread
between buying and selling the most liquid U.S. Treasury Bill is measured toa tick as tight as 1/128th of a point. Between lending protocols, interest rates
vary greatly on the same asset, as depicted in Figure 10.

43One Rate To Rule Them All

Part 2

Fixed Income in Crypto

In mature financial markets, capital flow typically starts with‘risk-free’ and interest-bearing assets before migrating to higher beta
instruments. However, the adoption of DeFi fixed income has been
structurally the opposite, with retail investors leading the charge into
the tail end of high-beta instruments. Beyond the two major categories
mentioned, other DeFi fixed income solutions exist.
Pendle Finance, for example, pioneered the DeFi Separate Trading of Registered Interest and Principal of Securities (STRIPS), similar
to the model used for Mortgage-Backed Securities (MBS) and U.S.
Treasuries. Protocols like Exactly, Notional, and Yield also boast Total
Value Locked (TVL). However, liquidity remains fragmented acrossthese platforms, with wide pricing, bid-ask spreads, and high slippage,
all due to the absence of standards or conventions between protocols.
Compared to traditional finance, where a single corporate issuer
today can launch a bond offering equivalent to the TVL of the entire
sector, crypto fixed income still has significant ground to cover.
However, the progress made in this space is noteworthy, consideringthat it has already caught up with many aspects of traditional fixedincome despite lacking essential infrastructures. As we will explore inPart 4, the implementation of Decentralized Offered Rates in crypto
has the potential to unlock value across the full spectrum of fixedincome assets.

44

3
Crypto Risk-Free Rate“

I don't look to jump over seven-foot bars;
I look around for one-foot bars that I can step over.
— Warren BuffetImagine stepping into a newly erected skyscraper only to realize it
was constructed by inexperienced 10-year-olds oblivious to building

safety standards. Instinctively, you would yearn for the nearest exit.
Whether the building’s foundation was fortified with reinforced
concrete or the sturdiest steel in the world is irrelevant at this point—
the concern lies in the absence of any standards to begin with!
Just as the foundation of a strong building is governed by its safety
standards, the heart of a mature financial market lies in its benchmark‘risk-free’ rate. In traditional finance, the ‘risk-free’ rate serves as a
crucial metric for investors across asset classes and is used as the basis
for pricing financial instruments, comparing returns, calculating thecost of carry, and much more. In crypto, no equivalent standard exists
today, a missing layer that has hindered the overall growth of the space.
45

One Rate To Rule Them All

Part 3

Crypto Risk-Free Rate

The ‘Risk-Free’ Case for Crypto“

What Wall Street considers a “good” return will vary from year-to-year
depending on what the yield on T-bills sits at. If the yield is zero, then taking risk
and making a 5% annualized return is excellent. If the yield is 5%, then all of a sudden
your efforts to take risk and still only capture a 5% return doesn’t look so hot.
You could have received the same gain by throwing all your dough in T-bills
and laying in a hammock on the beach all year.
— Tyler CraigAs emphasized in Part 2, the notion of a truly ‘riskless’ asset is amisnomer; risks are inherent in all aspects of life. However, soci-ety has recognized the importance of deriving a theoretical ‘risk-free’
return, evident in its widespread use in financial markets today.
Various academic methodologies exist to calculate this crucial
benchmark. One approach involves the convergence of an asset's spot
price and its corresponding futures contract, theoretically implyinga ‘risk-free’ return for a specified time period through arbitrage. The
formula, however, fails to capture the full nuances of the market,
46

One Rate To Rule Them All

Part 3

Crypto Risk-Free Rate

leading many investors to rely on alternative proxies in practice.
Another popular method isolates and hedges out all tradable risks
associated with an asset, revealing only its ‘risk-free’ component. In
reality, the exercise becomes increasingly complex, especially whenattempting to quantify non-tradable tail-end risks such as events likesolar flares or the threat of nuclear war.
Over time, society has learned through collective input that apurely scientific approach to defining ‘risk-free’ is often impractical.
Instead, the market has gravitated towards a preferred proxy, one
rooted in social conventions and focused on elements that are sufficiently ‘risk-free’ yet also systemic, measurable, and practical.
In the case of the USD, the widely accepted ‘risk-free’ rate is the
U.S. treasury curve’s yield to maturity (YTM). While not without its
flaws, this convention persists because it assumes that the U.S. government's failure to honor its debt is both systemic and measurable.

‘Risk-Free’ through Implied Futures
The implied ‘risk-free’ rate method can be calculated using the cost of carrymodel when dealing with futures contracts.

Implied rate = (Forward / Spot)

1/Time-1

Where:• Forward is the futures price.
• Spot is the spot price of the underlying asset.
• Time is the time until the expiration of the futures contract.

47

One Rate To Rule Them All

Part 3

Crypto Risk-Free Rate

In the realm of digital assets, perspectives on what constitutes‘risk-free’ vary considerably. Fiat-centric investors may lean towards
the U.S. treasury curve, while native on-chain investors may view
such attempts as contradictory to the ethos of DeFi. Regardless ofperspective, the operation requires a blend of art and science.
To effectively propose a case for a crypto ‘risk-free’ rate, we mustfirst establish a framework capable of classifying the spectrum of risk
premiums present in crypto. Certain assumptions must also be made.
First, the rate should ideally be independent of elements beyond crypto.
This necessitates that a Bitcoin ‘risk-free’ rate, for instance, should only
consider components within the Bitcoin ecosystem, avoiding relianceon external denominations or currencies. Second, drawing inspiration from traditional finance, we must identify what could serve asa sufficiently reliable equivalent to crypto's 'U.S. government,' recognizing the concept of ‘risk-free’ to be social, theoretical, and criticalto enhancing productivity, efficiency, and convenience in the fixedincome space.

48

Part 3

One Rate To Rule Them All

Crypto Risk-Free Rate

Treehouse Crypto Risk
Premia Framework“

Risk premia stands for the expected return of an asset in excess of therisk-free rate of return. If a stock is expected to return 10% per annum (p.a.)while the risk-free rate is 2% p.a., the stock’s risk premium is 8% p.a.
— Treehouse ResearchR

isk and return are inherently linked, with any potential return
contingent upon assuming certain risk premiums in an efficientmanner. Even strategies commonly perceived as ‘risk-neutral,’ likearbitrage, are typically only market risk-neutral. Consider the scenario
where ETH trades at a 2% price difference between two centralizedexchanges; executing a simultaneous buy-low-sell-high trade would
yield a market-neutral profit of 2%. The trader, however, is still exposedto certain inherent risks, such as the failure of withdrawal, settlement,
or even a trade cancellation from either or both exchanges. Consequently, the 2% profit is paid out to arbitrageurs shouldering theserisks, including but not limited to operational risks and Centralized
Exchange (CEX) credit risks.

49

One Rate To Rule Them All

Part 3

Crypto Risk-Free RateAt the bottom of this section, we present Treehouse’s Crypto Risk
Premia Framework. As the framework can get quite technical, reading
it is entirely optional. To understand it conceptually, however, drawing
parallels with the traditional finance world is helpful, where blockchains can be likened to natural resources or countries. Within thesesystems, specific attributes of ‘risk-free’ exist, and their failure could
lead to the systemic collapse of the asset in question.
At one end of our spectrum lies Level 0 risks, which are profoundlysystemic events akin to the collapse of the internet caused by a solar
flare. These risks are equally applicable in the traditional finance realm
and are notoriously difficult to quantify.
On the opposite end of the scale are Level 2 risks, which areprotocol-centric. They are comparable to creditworthiness assessments conducted by rating agencies for corporations within a country.
In this analogy, protocols are akin to corporations building on top of
blockchain, each with its own specific risks related to its operationaland financial health.
Among the various risk premiums, Level 1 risks, or chain-specificinfrastructure risks, best resemble how traditional finance derives its‘risk-free’ rate. It is important to note, however, that not all blockchains
are the same; just like countries, governance structures vary, but risks
at this level are generically measurable, systemic, and practical, making
50

One Rate To Rule Them All

Part 3

Crypto Risk-Free Ratethem suitable candidates for anchoring a framework for assessing
crypto 'risk-free' rates.

51

One Rate To Rule Them All

Part 3

Crypto Risk-Free Rate

Treehouse Crypto Risk Premia Framework
A. Level 0
Level 0 risks are implicitly borne by all DeFi investors. Such risks are deemed
extremely unlikely but exist nevertheless and thus do not generate meaningful
investment returns. Examples include:

1. Internet Infrastructure: Proof-of-Stake chains exist fully in the digitaldomain and rely on at least some global internet infrastructure to remain
operational. Example: if major providers of internet infrastructure (e.g., Cloudflare) go down, digital assets may become inaccessible and even worthless.

2. DeFi Infrastructure: DeFi ecosystems use similar building blocks, which,
if down, could impact the value of assets that rely on them. Infrastructures
such as wallets and stablecoins fit into this category.
• For an in-depth read on stablecoin design mechanisms, refer to ourTreehouse Research article: “Stablecoins in Flux: Growth, Challenges,
and the Future of Crypto Stability.”

B. Level 1
At this level, investors begin to get paid meaningful returns for taking relevantrisk premiums.

• Chain Infrastructure: Staking yield is the primary return rewarded toinvestors exposed to chain infrastructure. Stakers might lose their principal inevents of slashing and major chain malfunctioning (e.g., an entire chain shuts
down for a prolonged period, a chain hard forks with less than one-to-one
payouts of the new tokens, validator corruption, etc.). Some chains incentivize ecosystem participation with bonus tokens (e.g., AVAX Rush) at theearly stage of deployment. Investors who harvest (“farm”) these returns also
get compensated for taking chain infrastructure risks, as they sign up as early52

One Rate To Rule Them All

Part 3

Crypto Risk-Free Rate

adopters who risk losing capital in the event of an ecosystem malfunction.

C. Level 2
Rewards paid out by protocols to attract users can be viewed as another setof risk premiums.

1. Smart Contract Risks include, but are not limited to:• Oracles: Malfunctioning of oracles could result in incorrect liquidations, protocol exploits, and many more issues.
• Protocol Developer Credit Risk: Rug pull risks are important toconsider when conducting due diligence, as the impact on capitaldrawdown is severe and usually irrecoverable.
• Bugs, Hacks, and Malfunctions: Even for well-developed protocols
with credible teams behind them, dApps can still be exploited due topreviously undiscovered glitches.
• Tokenomics Design Deficiencies: Do credible developer teams
and triple code audits guarantee a successful token performance? Not
necessarily. Failure in designing sustainable tokenomics is an inherent
risk that investors take when having exposure to newly founded
protocols that give out generous token rewards.

2. Bridges: Crossing chains is a common but potentially risky endeavor.
Bridge hacks are not uncommon, and liquidity-based bridges can see
wrapped tokens stuck on a chain without liquidity inflow. Risk premiums
associated with bridges are currently hard to isolate, even with proxies.

3. Liquid Staking Protocols: Although liquid staking protocols are
one-to-one and hence will not face actual insolvency, loss of parity between
liquid staked and native tokens can still happen. In essence, liquid staking
is akin to an auto-rolled short position on native token liquidity. Pricedifferentials between liquid staked and native tokens reflect the price of53One Rate To Rule Them All

Part 3

Crypto Risk-Free Ratesuch liquidity. If the market panics and overpriced liquidity, liquid staked
positions will suffer mark-to-market losses, even though these losses are
unrealized until holders decide to (or are forced to) sell.

Traditional Finance Risk-Premia
In traditional finance, many types of risk-premia exist. Two of the more
relevant ones common in fixed income are:

A. Credit Risk
Credit risk, or default risk, is a risk premium that compensates lenders who
lend money to anyone other than the U.S. federal government. It reflects
the market pricing of a particular borrower’s default probability. Common
types of commercial borrowers who are not ‘risk-free’ include municipalities,
corporates, supranational agencies (e.g., African Development Bank), andforeign governments (specific to their USD borrowings). Personal borrowers
are also treated with different rates depending on their credit history when54

One Rate To Rule Them All

Part 3

Crypto Risk-Free Rateborrowing via mortgages, applying for credit cards, etc. In traditional finance,
credit bond spreads and Credit Default Swaps (CDS) are standard instruments
market participants trade to express their views on credit risk premiums.

B. Duration Risk
Duration risk mainly comes from the probability of borrower default and theopportunity cost of locking up capital for extended periods. The longer thelending term until repayment, the larger the likelihood of borrower default.
Imagine if a borrower had a 5% probability of default every year, i.e., a 95%
probability not to default, then the likelihood of the borrower not defaulting
after 5 years will roughly be 0.95 ^ 5 = 77%. This is why the market requires arisk premium to take on more duration risk. The opportunity cost of locking
up capital can also be explained as follows. If $100 is lent to a borrower for 5
years at 2% p.a., the lender will miss out on the yield upside for this $100 if theprevailing market rate (for the same borrower’s creditworthiness and lending
terms) rises to 5% p.a. In fixed income jargon, duration risk premium is also
referred to as term structure or yield curve. Even long-term U.S. Treasury
bonds without perceived issuer default risks have duration risk premia priced
into their curves.

Besides the above two, other risk-premiums exist, such as those related tocapital structure, volatility, and factorization. It is also important to note thatwhile traditional finance risk premiums may be relevant to crypto, the reverse
is not always true. Readers who are interested in doing a deeper dive can readour full analysis “Deconstructing DeFi Returns: Harvesting Risk Premia,” on
the Treehouse Research website.

55

One Rate To Rule Them All

Part 356

Crypto Risk-Free RateOne Rate To Rule Them All

Part 3

Crypto Risk-Free Rate

The Satoshi Reserve“

Bitcoin is a swarm of cyber hornets serving the goddess of wisdom,
feeding on the fire of truth, exponentially growing ever smarter,
faster, and stronger behind a wall of encrypted energy.
— Michael SaylorArmed with the insights from the preceding sections, we are now
prepared to evaluate a crypto ‘risk-free’ rate. Let us begin our

analysis with Bitcoin (BTC) and Ethereum (ETH), as these two cryptocurrencies collectively represent 70% of the crypto market capitalization, capturing the majority of institutional interest. As we will see,
Bitcoin's mechanisms align more with those of a commodity, whereas
Ethereum exhibits characteristics akin to a nation-state.

Bitcoin: The Gold Standard
Bitcoin, the King of Crypto, owes its existence to the Proofof-Work (PoW) mechanism. This system incentivizes miners to validate transactions on the blockchain and uphold decentralization by57

One Rate To Rule Them All

Part 3

Crypto Risk-Free Rate

dedicating computational power to the network. In return for theirefforts, miners receive Bitcoin rewards.
When assessing Bitcoin's PoW mechanism in the context of a‘risk-free’ evaluation, it initially appears to meet crucial criteria. Firstly,
PoW is undeniably systemic; without it, Bitcoin would effectively
cease to exist, as there would be no miners to compute transactions on
the network. Additionally, the rewards provided by Bitcoin’s PoW are
measurable, and the yield earned by the median Bitcoin miner could
potentially serve as a reasonable proxy for the currency’s ‘risk-free’ rate.
However, upon closer examination, complications arise. Bitcoin’ssource of yield generation is primarily dependent on variables external
to the asset itself, such as the computational power, or hash rate, deployed by miners.
This situation mirrors the gold mining industry. To mine Goldnaturally, one needs to buy mining machinery, among others, andexpend effort to find an accessible plot of land (ideally with a lot ofGold). Not all lands are the same, however, and the associated costs
and rewards of mining Gold across geographies can vary significantly.
This is why it is not common practice for market participants to talkabout a Gold ‘risk-free’ rate, nor is it readily used to calculate returns
for the asset given the intricacies of the factors mentioned.
In both scenarios, achieving a yield depends on factors not
intrinsic to the asset itself, such as labor and machinery costs. Thisreliance on external variables and the potential variance in cost andrewards detracts from the independence criteria necessary for establishing a trustable benchmark, making it impractical. Consequently,
Bitcoin's PoW system falls short of meeting these criteria.

58One Rate To Rule Them All

Part 3

Crypto Risk-Free Rate

The Nation of Gwei“

In order to have a decentralized database, you need to have security.
In order to have security, [...] you need to have incentives.
— Vitalik Buterin

Ethereum and the United StatesC

onducting the same assessment of Ethereum’s mechanism reveals a different story. Since its transition from Proof-of-Work(PoW) to Proof-of-Stake (PoS) in September 2022, Ethereum’s PoS
system has taken on a structure reminiscent of (caveat: some) sovereign
economies. The similarities are striking, with both systems exhibiting
identical structures and functions of a democratic government.
For instance, both Ethereum and sovereign economies feature
independent currencies. Within Ethereum, gas tokens serve as thenative currency for transactions within the blockchain ecosystem,
analogous to fiat currencies used in national economies. This currency
facilitates the execution of smart contracts and transactions within the59One Rate To Rule Them All

Part 3

Crypto Risk-Free Rate

Ethereum network.
Similarly, both systems incorporate mechanisms for governanceparticipation. In Ethereum's PoS system, holders of Ethereum stake
their tokens to participate in the network's governance, similar to
citizens voting in national elections to influence policy decisions.
Mechanisms for tracking the inflow and outflow of assets also
exist, identical to current accounts monitoring Total Value Locked(TVL) in the blockchain ecosystem. Additionally, both ecosystems
host sophisticated financial institutions, including decentralizedexchanges, money markets, and derivatives platforms, facilitating awide range of economic activities.
At present, Ethereum's PoS mechanism has over $100 billion worthof ETH staked, representing approximately 5% of the total cryptocurrency market value. This substantial stake underscores Ethereum's
prominence and influence within the broader crypto landscape, akinto the significance of the United States in traditional finance. TL;DR:
what Bitcoin is to Gold, Ethereum is to the United States.

60

One Rate To Rule Them All

Part 3

Crypto Risk-Free Rate

Comparing Ethereum's mechanisms to those of the U.S., certain
fundamental aspects align. Both entities have their native currencies
as the basis for monetary exchange, and their financial systems arecontrolled by respective systems that come with a clear associatedreturn. While Ethereum's PoS governance system does not perfectly
mirror the Federal Reserve, or more precisely, the Federal Open Market
Committee (FOMC), parallels can be drawn in their objectives. For
instance, the FOMC adjusts rates to regulate the circulation of moneyin the economy, while PoS staking rates are influenced by transaction
volumes and other factors.
Ultimately, the case for Ethereum’s ‘risk-free’ rate hinges onstaking ETH to earn more ETH, with the stability of PoS directly linked
to predeterministic factors related to Ethereum’s network usage andsecurity. A failure of the PoS mechanism would invariably expose
Ethereum to systemic risk, akin to the U.S. Treasury's role in traditional
finance.

Comparing Overnight Federal Funds to ETH PoS
Ethereum's PoS rewards are distributed block-by-block, leading to varying
returns depending on a staker's job. Several roles pay an outsized return, anda user’s chances of being chosen increase with the quantity of ETH staked,
making it hard for small stakers to compete. As a result, the yield earned
across staker profiles in the short term can be volatile.

In December 2020, however, the introduction of Lido changed this as the
protocol pooled ETH across stakers, normalizing the probability of PoS
return. Today, Lido's ETH (stETH) holders comprise the largest proportion of
ETH PoS stakers, receiving both a consistent median yield and the highest
expected yield for stakers who utilize its services.

61One Rate To Rule Them All

Part 3

Crypto Risk-Free Rate

Without Lido, the expected return profile of individual stakers with theminimum amount of ETH versus the overall yield paid out from a network
level can be drastically different. Lido’s stETH has helped to reduce thisvariance, as seen in the illustration below.

To draw an analogy to traditional finance, consider the U.S. overnight federal
funds rate, which represents the interest rate at which depository institutions
lend reserve balances to other institutions overnight on an uncollateralizedbasis. The FOMC typically announces a target range for the federal funds rate
after each meeting, serving as a guide for actual market trading. At the sametime, the Federal Reserve can indirectly set the upper and lower range of thefederal funds rate through instruments under its belt.

Specifically, the Federal Reserve can directly control the Interest on Excess
Reserves (IOER) rate, which functions as the effective floor for the federal
funds rate, as it is the interest rate paid by the Federal Reserve to depository
institutions on excess reserves held at Federal Reserve Banks. Additionally,
the discount window provides a lending facility for eligible institutions to62One Rate To Rule Them All

Part 3

Crypto Risk-Free Rateborrow funds directly from the Federal Reserve, typically at a higher interest
rate than the federal funds rate target range set by the FOMC, thereby acting
as a ceiling for the federal funds rate.

While not a perfect comparison, this analogy offers insight into how themechanisms of the PoS system operate similarly to those of a governing
country, with its own economic dynamics and governance structure. The
U.S. federal fund rates and the ETH PoS return can be considered essential
short-term interest rates for their respective economies.

63

Part 3

One Rate To Rule Them All

Crypto Risk-Free Rate

Protocol Monetary System, A Case Study on Sushi
Protocols exhibit unique attributes that sometimes resemble a country's
monetary system. Three years ago, the Treehouse Research team attempted

Part 2B

Part 2A

Part 1

to make sense of Sushi’s governance system in a three-part analysis.

The argument suggests that Ethereum's Proof-of-Stake (PoS)
rewards can serve as its ‘risk-free’ rate. To illustrate this on-chain,consider the AAVE example again, where the mid-rate for borrowing
and lending ETH is 2.15% p.a. If we assume an ETH PoS rate of 3.5% p.a.,lenders of ETH would fare better by staking it through PoS rather thanlending it on AAVE, as PoS (Level 1 Risk) is considerably and theoretically safer compared to lending on AAVE (Level 2 Risk).
Drawing parallels to the example with Tesla, Inc. bonds, individuals typically demand higher yields for taking on additional risks,with the ‘risk-free’ rate acting as a floor. From an investment standpoint, any risky activity involving ETH assets on-chain should yield atleast 3.5% p.a.
While this analogy of Ethereum’s PoS and U.S. treasuries aligns
with the concept of risk and return, it does not perfectly mirror eachother, a key difference being that the U.S. Treasury market has anentire yield curve, with bonds active up to 30-year tenors. In contrast,
Ethereum's PoS only exists at the spot time frame with no duration ortime element priced into the instrument, reflecting only the current‘risk-free’ rate on a block frequency basis.
64

4
The Treehouse Protocol“

Cryptographic truth is a superior way for the entire world to operate.
Once you experience the transparency, personal control and lower
risks of a world powered by truth, rather than a world backed only
by "just trust us" ideas, you simply cannot go back.
— Sergey NazarovIn the previous chapters, we examined how fixed income formeda colossal segment of traditional finance and determined that thepotential for this asset class in crypto is equally vast. We built a casefor Smart Contracts as an upgrade to conventional societal contracts
and explored fixed income and ‘risk-free’ rates in the context ofdigital assets. In Part 4, we bring everything together to introduce theTreehouse Protocol, a decentralized application that aims to unlock thedigital asset fixed income market through two new financial primitives:
Treehouse Assets (tAssets) and Decentralized Offered Rates (DOR).

65

One Rate To Rule Them All

Part 4The Treehouse Protocol

The Fragmentationof On-Chain Spot Rates“

Prices are important not because money is considered paramountbut because prices are a fast and effective conveyor of information througha vast society in which fragmented knowledge must be coordinated.
— Thomas SowellP

rices are essential indicators of an economy, reflecting its openness, cost of living, regulations, and more. In established markets

like equities, observable price differences are rare because bots andtraders are incentivized to quickly eliminate them—a feedback loopthat ensures an asset’s price closely reflects its market value.
Despite significant investment in new on-chain fixed income
solutions, adoption and innovation in the space has been lackluster.
Several factors contribute to this sluggishness: the complexity of fixedincome concepts, the predominantly retail-heavy nature of the digitalassets ecosystem, and the lack of standardization across platforms—allof which have resulted in a fragmented interest rates market.

66

One Rate To Rule Them All

Part 4The Treehouse Protocol

What is market fragmentation?
Market fragmentation refers to the division of a market into
smaller segments, often leading to inefficiencies where the same asset
may be priced differently across various platforms or locations. It canalso take different forms, including price or interest rate fragmentation.
Imagine visiting a fruit market where you initially buy branded
apples for what you thought was a discounted price of $10. Later, you
discover the same apples being sold elsewhere for $5, leaving you
feeling disappointed. The next day, you find the price at the first shop
has changed to $8.5, while a neighboring store is selling them for $15.
This inconsistent pricing might lead you to decide against buying
apples altogether!
In the context of on-chain markets, interest rate fragmentation
manifests as significant differences in interest rates for the same asset
across various platforms. A user looking to borrow or lend USDCor ETH, for instance, might find drastically different interest rates
depending on the platform they use. Ideally, consensus would look
like everyone buying and selling apples—or, in our case, lending andborrowing at the same price or rate.
However, in reality, borrowing and lending rates can fluctuate
widely across platforms like Aave and Spark, creating uncertainty forusers. This variability makes it challenging for participants to confidently determine the best terms for borrowing or lending, as illustrated
in Figure 18 below.

67One Rate To Rule Them All

Part 4The Treehouse Protocol

Unfortunately, interest rate fragmentation is a systemic issue,
with the problem being most prevalent in the on-chain market for
ETH. Figure 19 below illustrates ETH’s borrowing and lending rates
across the top protocols over a nine-month period from 2023 to 2024,
revealing significant fragmentation. This issue is not confined to thespot time frame but also affects duration-based interest rate instruments, which partly explains the scarcity of tenor-based instrumentsin the market.

68One Rate To Rule Them All

Part 469

The Treehouse Protocol

One Rate To Rule Them All

Part 4The Treehouse Protocol

tETH: Converging ETH Interest Rates“

Arbitrage will take place whenever there is an imbalancecreated in one or more markets that are similar.
— John GutfreundT

he need to converge on-chain borrowing and lending rates acrossplatforms is evident; otherwise, the fixed income space will likely

take many more years to mature. We introduce the Treehouse Protocol
and its key component, Treehouse ETH (tETH) to address this fragmentation head-on.

70One Rate To Rule Them All

Part 4The Treehouse Protocol

Introducing tETH
tETH is a liquid restaking token (LRT) designed to unify
Ethereum's fragmented interest rates, allowing holders to earn real
yield through interest rate arbitrage. By leveraging Ether (ETH) andother liquid staking tokens (LST) like stETH (Lido staked ETH), tETH
is built to be easily accessible and resonate with the average blockchain user.
The strategy of tETH can be condensed into borrowing Ethereumat a lower rate (akin to buying apples at a low price) and then staking
it to earn a higher return (selling those apples at a higher price). By
utilizing this strategy, we can influence interest rates on lending
platforms, effectively converging these rates towards the theoretical
ETH ‘risk-free’ rate.

71One Rate To Rule Them All

Part 4The Treehouse Protocol

As explained in Part 3, the Ethereum Staking Rate is essentially
Ethereum's version of a ‘risk-free’ rate. It is like knowing the benchmark
or market consensus price at which you can always sell apples. tETH
works on the premise that the ETH staking rate—i.e. Ethereum’s ‘riskfree’ rate—acts as the baseline for any yield on ETH, and no ETH
investment should rationally offer a lower return. This is because thestaking rate represents the minimum return an investor can expect bysimply staking ETH in the Ethereum network's Proof of Stake (PoS)
mechanism. As such, an arbitrage opportunity arises when borrowing
ETH is cheaper than the yield earned from staking it into PoS. By doing
so, the utilization of the pool increases, along with the borrowing rate,
converging interest rates toward the Ethereum ‘risk-free’ rate. This
convergence helps enhance market confidence and provide return
predictability, similar to setting a standard for pricing apples.

72One Rate To Rule Them All

Part 4The Treehouse Protocol

The key functions of tETH
• Ensuring On-Chain Interest Rate Efficiency:
Holders of tETH play a crucial role in shaping on-chain markets
by converging rates to Ethereum’s ‘risk-free’ rate. This ensuresborrowing and lending rates across various platforms alignmore closely, reducing arbitrage opportunities and stabilizing
the market.
• Democratizing Access to Fixed Income Arbitrage:
Traditionally, arbitrage strategies in fixed income markets areaccessible only to institutional investors. tETH changes thisby allowing retail investors to participate in these strategies,
promoting a fairer market environment.
• Powering Decentralized Offer Rates (DOR):
By holding tETH, users contribute to the cryptoeconomic
security of the Treehouse Actively Validated Service (AVS),
supporting the stability and reliability of decentralized offer
rates within the ecosystem.

While savvy investors today employ fixed income arbitrage
strategies in the crypto market, these efforts alone are insufficient tostabilize the market. Significant mispricings still persist, and achieving
convergence requires a substantial capital base amounting to hundredsof millions of dollars. That is why we need you. By holding tETH, users
participate in Treehouse’s push towards interest rate convergence,
which is vital in ensuring on-chain interest rate market efficiency.
The introduction of tETH marks the beginning of a broader
expansion of tAssets—a new primitive designed to facilitate interest
73

One Rate To Rule Them All

Part 4The Treehouse Protocol

rate convergence across the digital asset space. We plan to develop
other tAssets in the near future, further unifying and stabilizing interest
rates across the DeFi landscape. The expansion will enable investors
to capitalize on interest rate arbitrage opportunities on a larger scale,fostering a more efficient and integrated financial ecosystem.

tETH
Documentation
Refer to the tETH
docs by scanning the
QR code below for
more information.

74

One Rate To Rule Them All

Part 4The Treehouse Protocol

DOR: Decentralized Offered Rates“

Blockchain technology isn't just a more efficient way to settle
securities. It will fundamentally change market structures.
— Abigail JohnsonIn the previous section, we discussed how tETH is fundamental toestablishing Ethereum’s ‘risk-free’ rate. To further play on our apple

analogy, tETH resembles an apple-picking robot—part harvester, partsavvy trader. This terminator of a robot not only plucks apples fromyour tree (Ether) but also zips off to the inefficient apples market toplay the arbitrage game. But that is not all—once borrowing andlending rates converge to Ethereum’s ‘risk-free’ rate, Decentralized
Offered Rates (DOR) comes into the picture.
In the context of financial markets, interest rates serve as crucial

indicators of credit risk. They reflect the compensation lenders
demand for the risk associated with lending capital. Typically, lenders
expect borrowers to pay interest rates throughout the contract period
and repay the principal amount at maturity. These rates are often struc75

One Rate To Rule Them All

Part 4The Treehouse Protocol

tured on top of reference rates that anchor the base cost of borrowing,
but this framework is largely absent in digital assets today.

Introducing DOR
Decentralized Offered Rates (DOR) are reference rate curves that
protocols and platforms can use to underpin interest rate financial
products. DOR functions as a consensus mechanism, incentivizing a
consortium of stakeholders to establish robust benchmark rates acrossvarious time horizons.

How does all of this work?
At its core, DOR operates by aggregating data from multiple stakeholders, including operators, panelists, referencers, and delegators,
who each play a critical role in determining the final rate. Operators
establish the parameters for rate calculations and maintain system
integrity, while panelists submit interest rate forecasts based on their76

Part 4

One Rate To Rule Them All

The Treehouse Protocol

proprietary models. Referencers integrate these rates into financial
products, and delegators support the system by delegating their assets
to trusted panelists, enhancing rate accuracy and reliability.
The process begins with operators defining the rate and setting
parameters for panelists to forecast. Panelists, armed with their models
and insights, provide their interest rate predictions, which are thenaggregated by the DOR system. Outlier values that could skew thedata are removed to ensure fairness and accuracy, and the remaining
data is used to calculate a consensus mean rate. This consensus rate
is published as the DOR, which can then be used as a benchmark forvarious financial products within the DeFi ecosystem.

A Theatrical Analogy• Operators are like the theater directors, setting the stage,
coordinating the actors, and overseeing the entire production.
They set the tone and direction for the show, much like setting
the parameters for the DOR.
• Panelists are akin to the scriptwriters, devising the storyline –in this case, the forecasted rates. Their scripts (predictions) are
crucial for the play (financial ecosystem) to be believable andengaging.
• Delegators resemble the investors in the production. Theyfund the play, hoping it will be a hit. Their support allows the
scriptwriters (panelists) to develop and refine the script (ratepredictions).
• Referencers are the critics and promoters. They publicize theplay and provide an accessible interpretation (benchmarks) for77

Part 4

One Rate To Rule Them All

The Treehouse Protocol

the audience. They rely on the script's quality (accuracy of therates) to attract the public and endorse the play.
• End Users are the audience, buying tickets and filling theseats. Their demand for an entertaining evening reflects themarket within the financial system for reliable and functional
products tied to the DOR.
Every role is interconnected in each step of the production:
without a director's (operator's) vision, there's no structure;
without a scriptwriter's (panelists) story, there's nothing toperform; without investors (delegators), there's no funding forthe show; without critics and promoters (referencers), there's nobuzz to draw the public; and without an audience (end users),
there's no one to appreciate and sustain the play.

One of DOR’s key features is its slashing and incentive structure.
Stakeholders are rewarded for providing accurate data and penalized
for submitting erroneous or manipulated information. This incentivization aligns participants' interests with the system’s integrity,
fostering a self-regulating ecosystem where data accuracy is paramount and biases are minimized. By embedding these incentives,
DOR addresses the limitations of traditional financial benchmarks andenhances transparency in the DeFi ecosystem.

Slashing Mechanism
DOR uses ‘slashing’ to deter and penalize panelists whose rate
submissions deviate significantly from the consensus. Slashing helps
maintain the integrity and accuracy of the DOR by enforcing penalties
on panelists whose predictions fall outside an acceptable range. This78

One Rate To Rule Them All

Part 4The Treehouse Protocol

range is typically defined by the standard deviation from the realized
rate over an observation period. When a panelist's submission diverges
too much from the consensus, their staked assets are partially or fully
confiscated, known as slashing.

Slashing: Back to Treehouse Theater
Going back to the theater analogy, imagine that to maintainhigh standards, the director (Operator) implements a rule. If thestoryline created by the scriptwriters (Panelists) receives significantly negative reviews (deviates too far from the consensus
rate predictions), they may lose part of their performancebonus (slashing their staked assets). This rule ensures that all
scriptwriters put in their best effort to maintain the integrity ofthe performance. Similarly, in the DOR system, panelists who
submit predictions far from the consensus are penalized.

79

Part 4

One Rate To Rule Them All

The Treehouse Protocol

Incentive Mechanism
As mentioned, the DOR system not only penalizes incorrect
predictions but also incentivizes accurate and well-considered submissions, which is crucial for maintaining system integrity and motivating
participants. When panelists provide accurate data, they are rewarded
with incentives from a designated reward pool. These rewards can takethe form of tokens or other financial incentives, which encourage panelists to continue submitting precise and well-researched predictions.
For other roles, incentives are aligned to ensure active participation and high performance:• Operators are rewarded for the successful maintenance,
marketing, and integrity of the DOR system. Their incentives aretied to the overall performance and reliability of the rate-setting
process.
• Delegators earn a share of the rewards by delegating theirassets to trusted panelists. This not only supports the system but
also enhances the accuracy and reliability of the rates. The betterthe performance of the panelists they support, the higher theirrewards.
• Referencers who integrate DOR feeds into their financial
products can earn incentives based on the adoption and usage ofthese rates in their offerings. The more their products rely on andbenefit from accurate rates, the more they stand to gain.
Treehouse’s incentivization structure ensures that all participants are motivated to contribute to the accuracy of DOR.

80

Part 4

One Rate To Rule Them All

The Treehouse Protocol

Comparison to TradFi
In traditional finance, reference rates like LIBOR (London
InterBank Offered Rate) and SOFR (Secured Overnight Financing Rate)
have been instrumental in providing benchmarks for a wide range offinancial instruments over recent decades. LIBOR, introduced in the
1980s, originally represented the average rate at which major global
banks were willing to lend to each other on the interbank market for
short-term loans. This rate was determined through daily submissions
by a panel of banks, reflecting their estimates of borrowing costs
for unsecured funds from other banks. The methodology relied on
subjective opinions to gauge the interbank borrowing landscape andpredict future interest rates.
Since LIBOR enabled the creation of rates based on collective
opinions about future interest rates, it was susceptible to manipulation. In June 2012, Barclays admitted to manipulating LIBOR andagreed to pay $450 million in fines as part of a settlement with U.S. andU.K. regulators. This revelation led to a broader investigation involving
many other banks, which resulted in significant fines and regulatorychanges aimed at preventing further misconduct. This, together
with the lack of clear incentives for honest reporting, has led to its
replacement by SOFR in June 2023.
SOFR, by contrast, is based on transaction data from the overnight
repurchase agreement (repo) market, providing a more transparent
and objective measure of borrowing costs. It aims to reduce the risks ofmanipulation associated with opinion-driven benchmarks like LIBOR,
marking a significant improvement in the reliability and trustworthiness of financial benchmarks in traditional finance.
SOFR, as an overnight rate, provides a historical perspective
on borrowing costs rather than anticipating future interest rate81One Rate To Rule Them All

Part 4The Treehouse Protocol

movements. To address this limitation, efforts have been made to
develop forward-looking Term SOFR rates. Entities like the Chicago
Mercantile Exchange (CME) calculate these rates using SOFR futuresand market data, offering a forward-looking benchmark suitable forlonger-term financial derivatives. For instance, companies with floating-rate loans tied to SOFR can hedge against rising rates by entering
into SOFR swaps on the CME. In such swaps, the company receives afloating rate based on Term SOFR and pays a fixed rate, thereby stabilizing their interest payments over time.
Despite these advancements from LIBOR, issues related tocentralization persist with SOFR. The Federal Reserve oversees the
publication of SOFR overnight rates, but there are no direct incentives for ensuring accurate reporting. This lack of direct incentives
contrasts with natural systems where cooperation is incentivized
to achieve optimal outcomes. As discussed in Part 1, Hobbes's Stateof Nature theory suggests that without structured incentives akin toSocial Contracts, self-interest tends to dominate, potentially leading to
suboptimal results for the broader community.
Relying solely on centralized authorities can be risky, as demonstrated by past financial benchmarks like LIBOR. Instead, we should
establish a structure that incentivizes good behavior regardless of thecircumstances. The DOR framework addresses these concerns by leveraging Smart Contracts and embedding an incentive structure within
its consensus mechanism. This approach motivates stakeholders toprovide accurate data by rewarding good behavior and penalizing
deviations, ensuring transparency and integrity in rate determination.
DOR combines elements of both LIBOR's opinion-driven methodology and SOFR's transaction-based approach. While SOFR mitigatesrisks associated with centralization, DOR enhances this by decentralizing the process, thereby reducing the potential for manipulation
82

One Rate To Rule Them All

Part 4The Treehouse Protocoland ensuring fairness in benchmark rate determination. This hybrid
approach benefits from the transparency and resilience of decentralized frameworks while incorporating the reliability and historicalcontext provided by traditional financial benchmarks.
By harnessing decentralized consensus and stakeholder incentives, DOR establishes a scalable framework for generating decentralized benchmark rates.

DOR
Documentation
Refer to the DOR
docs by scanning the
QR code below for
more information.

83

One Rate To Rule Them All

Part 4The Treehouse Protocol

First Application:
The Ethereum Staking Rate“

Money and bond markets function most efficiently when market
participants agree on certain instruments that serve as references– or benchmarks – for the pricing of other securities.
— Lawrence KreicherTreehouse’s very first application of DOR is the Ethereum Staking
Rate (ESR) Curve. Implementing the ESR Curve will enable us toplot out a yield curve for the Ethereum ‘risk-free’ rate, providing acomprehensive view of interest rates over different maturities.
As discussed in Part 3, once lending rates converge with Ethereum
PoS rate, the rate inferred by tETH is only reflective of the spot timeframe. No duration or time element is priced into the instrument,
thereby reflecting only the current ‘risk-free’ rate on a block frequency
basis. The introduction of the ESR Curve aims to address this limitation
by incorporating multiple data inputs from DOR across varying matur-

ities. This approach transforms the spot rate into a comprehensive
time-series curve, as depicted in Figure 24.
84One Rate To Rule Them All

Part 4The Treehouse Protocol

The ESR Curve serves a critical role for Ethereum by establishinga transparent benchmark rate over different durations, akin to theyield curves prevalent in traditional finance, essential for facilitating
accurate pricing, effective risk management, and broader financial
applications within the Ethereum ecosystem.

DOR in Action: Interest Rate Swaps
Creating a reference rate like the ESR Curve can facilitate theintroduction of financial instruments such as Interest Rate
Swaps (IRS) in the DeFi space. Since their inception in 1981,
IRS have become indispensable tools for managing institutional balance sheets, evolving into the largest and most widelyused derivative contracts globally, with outstanding contracts
totaling over $500 trillion. This vast market presents an opportunity for significant growth within DeFi, offering stakers new
tools to stabilize and optimize their returns.
Efforts to bridge this gap have included both on-chain and85One Rate To Rule Them All

Part 4The Treehouse Protocol

off-chain initiatives aimed at developing fixed income derivatives, such as staking rate swaps. Market makers and protocols
have experimented with float-to-fixed staking swaps, andvarious projects have raised substantial capital to innovatein this area. However, these efforts have faced challenges ingaining traction, evidenced by low trading volumes and limited
adoption based on their TVLs.
Understanding the distinction between fixed and floating rates
is crucial when considering IRS. Fixed income investments
typically provide regular interest payments that can be either
fixed or floating. Consider a Tesla bond with a fixed rate of 5%p.a.; barring any defaults, the investor would receive steadypayments reflecting this 5% p.a. return over the bond’s lifespan.
In contrast, a Tesla bond with a floating rate provides varying
returns, with interest payouts adjusted periodically based onprevailing market rates at each settlement.

Case in Point
Imagine you're the CEO of a company called Squirrel, specializing in selling nuts. Squirrel has taken out a loan with a fixedinterest rate of 5% p.a. Over time, it becomes evident that thecompany's revenues are insufficient to cover these fixed 5% p.a.
interest payments. Upon closer analysis, you discover a correlation between Squirrel's revenue and interest rates: when interest
rates increase, so does the company's revenue, and vice versa.
After careful consideration, you decide that navigating throughfinancial fluctuations is preferable to being stuck on a fixed
branch. Squirrel decides to enter into an IRS.

86

One Rate To Rule Them All

Part 4The Treehouse Protocol

As a result of the swap, the company's interest expenses now
fluctuate with its revenue patterns. When interest rates rise,causing both revenue and interest expenses to increase,
Squirrel can manage the higher payments. Conversely, wheninterest rates and revenues decline, the company benefits fromreduced interest expenses, maintaining a more stable financial
position overall.
In essence, picture a squirrel clutching a large acorn nut on atree branch. When the tree shakes due to changing economic
conditions (interest rates), the squirrel adjusts its grip (interest
rate payments) rather than risking a fall.

The Opportunity at Hand
With over $100 billion worth of ETH staked currently, Ethereum's
PoS has become the largest yield-bearing native instrument within
the crypto space. This mechanism operates akin to a floating rate,
where stakers earn rewards based on the network's activity at eachblock, resulting in variable returns over time. This variability poses achallenge for stakers seeking stable returns on their Ethereum investments, as they lack tools to effectively lock in their cash flows.
The introduction of DOR can bridge this gap by establishingaccurate benchmark rates such as the ESR Curve. These benchmarks
are essential for enhancing market efficiency and enabling improved
risk management practices. While IRS are an initial application, thepotential extends to a variety of new fixed income instruments. These
include floating rate notes, range accruals, swaptions, perpetual notes,
callable notes, term loans, and more—not just in Ethereum, but acrossall major L1s!
87

One Rate To Rule Them All

Part 488

The Treehouse Protocol

Conclusion
Perched Above The Dark Forest“

If crypto succeeds, it’s not because it empowers better people,
it’s because it empowers better institutions”— Vitalik ButerinBlockchain is a canvas enabling new forms of value creation thatwere previously impossible. Just as decentralized exchanges(DEXs) revolutionized finance by introducing a mechanism for decentralized price discovery, DOR introduces a new mechanism for decentralized rate discovery.
Thus the birth of the Treehouse Protocol. As with any groundbreaking innovation, we anticipate initial challenges and resistancefrom established players. Yet, we are confident that what we havedeveloped will define the future of finance. Crypto is often depicted asa ‘Dark Forest,’ a dangerous place resembling Hobbes' State of Nature.
While it cannot alter the laws of human nature, it can redefine incentives. Crypto embodies the essence of democracy, driven by trustlessconsensus—an uncharted digital domain that is unscathed by parti89

tioned interests for the first time. Crypto is a ‘Dark Forest,’ yet it shines
so brightly.

90Epilogue“

Many forms of Government have been tried, and will be tried in this worldof sin and woe. No one pretends that democracy is perfect or all-wise.
Indeed it has been said that democracy is the worst form of Government
except for all those other forms that have been tried from time to time.
— Winston ChurchillW

hat is next? DeFi is premised on the removal of inefficient intermediaries; but for the Treehouse to flourish, there needs to bea degree of governance to determine processes and give voice andcorrect incentives to parties, especially one that avoids gridlock.
Drawing from historical precedents, we advocate for a gover-nance model inspired by democratic societies and corporate governance structures. This model will distribute power across various
bodies of authority, empowered by the Treehouse token. SmartContracts will also play a pivotal role in shaping these governanceinteractions, minimizing bureaucratic inefficiencies common in traditional organizations.
91

The speed and evolution of the DeFi landscape require us to stayflexible and vigilant. As such, the devolution of decision-making power
will be gradual as we believe in being able to react quickly during theprotocol’s early stages. Over time, the use of token-based governancewill assume greater responsibility and we will fully transition when
Treehouse has matured to a point where it is ready to be self-sustaining.

92

Notes
Prologue
Baydakova, A. (2023, June 6). Gary Gensler’s Evolving Position on Crypto – in Quotes. Cointelegraph.
https://www.coindesk.com/consensus-magazine/2023/06/06/gary-genslers-evolving-position-on-crypto-inquotes/
Cna. (2024, April 30). Binance’s former CEO sentenced to 4 months prison in money laundering violations. CNA.
https://www.channelnewsasia.com/world/binances-former-ceo-sentenced-4-months-prison-money-laundering-violations-4304596/
Ethereum is a Dark Forest. (2020, August 28). Paradigm.
https://www.paradigm.xyz/2020/08/ethereum-is-a-dark-forest/
Huang, C. (2024, January 22). Singapore-based Terraform Labs files for bankruptcy in US after $53.6 billion crypto crash.
The Straits Times.
https://www.straitstimes.com/business/singapore-based-terraform-labs-files-for-bankruptcy-in-us-after536-billion-crypto-crash/Liu, C. (2015). The Dark Forest. Bloomsbury Publishing.

Part 1
Agorist, M. (2022, January 20). 80% OF all US dollars in existence have been printed in just the past two years - theWashington Standard. The Washington Standard.
https://thewashingtonstandard.com/80-of-all-us-dollars-in-existence-have-been-printed-in-just-the-pasttwo-years/
Aristotle. (2010). Nicomachean ethics.
https://openlibrary.org/books/OL7668954M/Nicomachean_Ethics/
BBC News. (2021, September 24). China declares all crypto-currency transactions illegal.
https://www.bbc.com/news/technology-58678907/
Bryan Taylor, Chief Economist, Global Financial Data. (2018, November 7). A billion dollars just ain’t what it used to be.
Global Financial Data.
https://globalfinancialdata.com/a-billion-dollars-just-aint-what-it-used-to-be/
Buterin, V. (2014). Ethereum: a Next-Generation smart contract and decentralized application platform. In ethereum.org.
https://ethereum.org/content/whitepaper/whitepaper-pdf/Ethereum_Whitepaper_-_Buterin_2014.pdf/

93Committee for a Responsible Federal Budget. (2023, September). National debt reaches $33 trillion.
https://www.crfb.org/press-releases/national-debt-reaches-33-trillion-adds-1-trillion-debt-3-months/
Cryptography’s role in securing the information Society. (1996). In National Academies Press eBooks.
https://doi.org/10.17226/5131/
Dale, O. (2018, January 17). A history of cryptography and the rise of the CypherPunks. Blockonomi.
https://blockonomi.com/cryptography-cypherpunks/
Dalio, R. (2021). Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail. Simon andSchuster.
Decrypt Media. (2021, November 20). MIT professor Gary Gensler to be appointed chair of US SEC. Forkast.
https://forkast.news/gary-gensler-appointed-us-sec-chair/
Federal Reserve Act. (1913).
https://www.federalreserve.gov/aboutthefed/fract.htm/
Financial Cryptography: The Mojo Nation Story. (2005).
https://www.financialcryptography.com/mt/archives/000571.html/
Graves, M. H. S. (2024, April 22). Who is Satoshi Nakamoto, The Creator of Bitcoin? Decrypt.
https://decrypt.co/resources/satoshi-nakamoto/Hamacher, A. (2022, April 6). How David Chaum went from inventing digital cash to pioneering digital privacy. Decrypt.
https://decrypt.co/95109/david-chaum-from-inventing-digital-cash-to-pioneering-digital-privacy/
Hayes, A. (2023, July 3). Pumping Iron - Arthur Hayes - Medium. Medium.
https://cryptohayes.medium.com/pumping-iron-ae8a54a32ea2/
Hobbes, T. (2018). Chapter 13. In Leviathan. Strelbytskyy Multimedia Publishing.
How are cryptocurrencies taxed in the UK and EU? | Binance blog. (n.d.). Binance Blog.
h t t p s : // w w w . b i n a n c e . c o m /e n / b l o g /a l l / h o w - a r e - c r y p t o c u r r e n c i e s - t a x e d - i n - t h e - u k and-eu-421499824684902104/
Human and budgetary costs to date of the U.S. war in Afghanistan, 2001-2022 | Figures | Costs of war. (2022).
The Costs of War.
https://watson.brown.edu/costsofwar/figures/2021/human-and-budgetary-costs-date-us-war-afghanistan-2001-2022/
Jevons, W. S. (1875). Money and the mechanism of exchange.
Lopp, J. (2023, June 17). What are the Key Properties of Bitcoin? Nakamoto.com.
https://nakamoto.com/what-are-the-key-properties-of-bitcoin/
M1 Money Supply. (2024, April 23).
https://fred.stlouisfed.org/series/M1SL/

94

Magic Money. (n.d.).
https://redirect.cs.umbc.edu/~woodcock/cmsc482/proj1/magmoney.html/
Manne, R. (2019). Cypherpunk Revolutionary: On Julian Assange.
Menger, C. (1950). Principles of economics. Ludwig von Mises Institute.
Peter G. Foundation. (n.d.). What is the U.S. national debt right now — and why is it so high?
https://www.pgpf.org/national-debt-clock/Pocket Bitcoin. (2023, March 9). The emergence of Cypherpunks and Bitcoin.
https://pocketbitcoin.com/learn/bitcoin/cypherpunks-explained/
Qureshi, H. (2020a, January 10). The Cypherpunks. Nakamoto.com.
https://nakamoto.com/the-cypherpunks/
Qureshi, H. (2020b, January 14). The history of modern banking. In a brief history of money. Nakamoto.com.
https://nakamoto.com/a-brief-history-of-money/
Qureshi, H. (2020c, June 9). Introduction to cryptocurrency. NAKAMOTO.
https://nakamoto.com/introduction-to-cryptocurrency/
Qureshi, H. (2021, February 14). Hashcash. Nakamoto.com.
https://nakamoto.com/hashcash/
Rousseau, J. (1893). The social contract: Or, Principles of Political Law. Also, A Project for a Perpetual Peace.
Sapiens: a brief history of humankind. (2015). Choice/Choice Reviews, 52(11), 52–5967.
https://doi.org/10.5860/choice.190494/
Shrestha, A. (2024, January 15). Bitcoin’s technical contribution: Solving Byzantine Generals Problem | by Ajay Shrestha| Nov, 2022 | Towards Data Science | Towards Data Science. Medium.
https://towardsdatascience.com/bitcoins-technical-contribution-solving-byzantine-general-s-problem-f0449973437c/
Social Contract Theory | Internet Encyclopedia of Philosophy. (n.d.).
https://iep.utm.edu/soc-cont/Stanford Encyclopedia of Philosophy. (2018, April 20). Contractualism.
https://plato.stanford.edu/entries/contractualism/#:~:text=Contractualism%20offers%20an%20alternative%20
to,their%20own%20interests%20to%20pursue/
Stanford Encyclopedia of Philosophy. (2021a, September 27). Contemporary approaches to the social Contract.
https://plato.stanford.edu/entries/contractarianism-contemporary/#ModPar/
Stanford Encyclopedia of Philosophy. (2021b, September 27). Part 2 - Modeling the Parties. In Contemporary approaches
to the social Contract.
https://plato.stanford.edu/entries/contractarianism-contemporary/#ModPar/95

Stanford Encyclopedia of Philosophy. (2021c, September 30). Contractarianism.
https://plato.stanford.edu/entries/contractarianism/
The Bretton Woods system. (n.d.). World Gold Council.
https://www.gold.org/history-gold/bretton-woods-system/
TheBitcoinNews. (2019, November 7). Bitcoin History Part 19: WikiLeaks and the Hornet’s Nest - The Bitcoin News.
The Bitcoin News - Blockchain and Bitcoin News.
https://thebitcoinnews.com/bitcoin-history-part-19-wikileaks-and-the-hornets-nest/
US Department of Justice. (2007, April). #07-301: 04-27-07 Digital currency business E-Gold indicted for money
laundering and illegal money transmitting.
https://www.justice.gov/archive/opa/pr/2007/April/07_crm_301.html/
Winklevoss Tyler. (2020, December 22). The problem with the U.S. dollar. In the case for $500K bitcoin. Winklevoss
Capital.
https://winklevosscapital.com/the-case-for-500k-bitcoin/

Part 2
Amery, A. (2019, December 18). History of Loans: Business Lending Through the Ages | Become. Become.
https://www.become.co/blog/a-brief-history-of-loans-business-lending-through-the-ages/
Badman, R. (2021, October 22). ‘It may disrupt our industry’: $2.2 trillion asset manager Pimco delves into crypto.
Stockhead.
https://stockhead.com.au/cryptocurrency/it-may-disrupt-our-industry-2-2-trillion-asset-manager-pimcobuys-deeper-in-crypto/
Bank of England. (n.d.). Bank of England founded. In History.
https://www.bankofengland.co.uk/about/history/
BIS. (2023, May 17). OTC derivatives statistics at end-December 2022.
https://www.bis.org/publ/otc_hy2305.htm/
Bromberg, B. (1942). The Origin of Banking: Religious finance in Babylonia. The Journal of Economic History, 2(1), 77–88.
https://doi.org/10.1017/s002205070005230x/
Cheah, S., & Lee, J. (2022, December). Global fixed income markets - New Year 2024 | RBC Global Asset Management- Institutional.
https://institutional.rbcgam.com/en/us/research-insights/article/global-fixed-income-markets-new-year2024_i/detail/Cotrugli Business School. (2023, October 11). Banking in Ancient Greece. COTRUGLI.
https://cotrugli.org/banking-in-ancient-greece/96

Lewis, M. M. (1990). Liar’s poker: Rising Through the Wreckage on Wall Street. Penguin (Non-Classics).
Marx, K. (1973). Grundrisse. In “Bastiat and Carey” (pp. 809-810).
http://ci.nii.ac.jp/ncid/BA04830240/
Nasdaq. (2018, July 17). 5 investment rules from Ray Dalio. Nasdaq.
https://www.nasdaq.com/articles/5-investment-rules-ray-dalio-2018-07-17/
Olivelle, P. (2006). Between the empires: Society in India 300 BCE to 400 CE. In Zenodo (CERN European Organization
for Nuclear Research).
https://doi.org/10.5281/zenodo.6464321/
Pendle Finance. (n.d.). Minting. In Pendle documentation.
https://docs.pendle.finance/ProtocolMechanics/YieldTokenization/Minting/
Sandor, K. . (2022, December 6). FTX Contagion Spreads as Orthogonal Trading Gets Default Notice for $36M Debt on
Maple Finance. CoinDesk.
https://www.coindesk.com/markets/2022/12/05/maple-finance-severs-ties-with-orthogonal-trading-alleging-it-misrepresented-financial-position/
SIFMA. (2023, July 24). Capital Markets Fact Book, 2023 - SIFMA.
https://www.sifma.org/resources/research/fact-book/
Solutions, S. (2022, October 10). Historical significance of surety bonds. Surety1.
https://surety1.com/history-surety-bonds/
Statista. (2024). Real Estate - Worldwide | Statista market forecast.
https://www.statista.com/outlook/fmo/real-estate/worldwide/
The Editors of Encyclopaedia Britannica. (2024, May 25). Code of Hammurabi | Summary & History. Encyclopedia
Britannica.
https://www.britannica.com/topic/Code-of-Hammurabi/Part 3Benwilliams. (2021, September 10). 5 features of Trusted Bitcoin Brokers - about Manchester. About Manchester.
https://aboutmanchester.co.uk/5-features-of-trusted-bitcoin-brokers/
CFA Institute. (2021). The Arbitrage-Free Valuation Framework.
ht tps://w w w.cfainstitute.org /en /membership/professional-development /refresher -readings/
arbitrage-free-valuation-framework/
Cmt, T. C. (2019, July 10). Options Theory: The Risk-Free Rate | Tackle Trading. Tackle Trading.
https://tackletrading.com/options-theory-the-risk-free-rate/
Nathan, & Nathan. (2024, January 3). 2024 Cryptocurrency market Outlook: Key developments - CMS Prime. CMS Prime.

97https://cmsprime.com/blog/2024-cryptocurrency-market-outlook-key-developments/
Nelson, D. (2021, September 14). Michael Saylor: Bitcoin’s Cyber Hornet. CoinDesk.
https://www.coindesk.com/markets/2020/12/08/michael-saylor-bitcoins-cyber-hornet/
Treehouse Finance. (2022, July). Deconstructing DEFI returns: Harvesting risk premia - Insights - Treehouse research.
Treehouse.
https://www.treehouse.finance/insights/deconstructing-defi-returns-harvesting-risk-premia/

Part 4
American Enterprise Institute. (2014, April). Quotations of the Day from Thomas Sowell.
https://www.aei.org /carpe-diem/quotations-of-the-day-from-thomas-sowell-2/#:~:text=Thomas%20
Sowell%20quotes%3A,fragmented%20knowledge%20must%20be%20coordinated./BIS Data Portal. (2023). OTC derivatives statistics publication table: BIS,DER_D7,1.0.
https://data.bis.org/topics/OTC_DER/tables-and-dashboards/BIS,DER_D7,1.0/
Federal Reserve Bank of New York. (2024). Repo and Reverse Repo Agreements.
https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/
repo-reverse-repo-agreements/
International Churchill Society. (2021, September 10). The worst form of government.
https://winstonchurchill.org/resources/quotes/the-worst-form-of-government/
Kreicher, L. L., McCauley, R. N., & Wooldridge, P. (2017, March 6). The bond benchmark continues to tip to swaps.
https://www.bis.org/publ/qtrpdf/r_qt1703h.htm/
Metaverse Post. (2023, November 14). Sergey Nazarov, co-founder of Chainlink | Metaverse Post.
https://mpost.io/people/sergey-nazarov-co-founder-of-chainlink/
Quote.org. (n.d.). John Gutfreund’s Quotes.
https://quote.org/quote/proprietary-stockindex-arbitrage-is-but-one-aspect-227188/
Rizzo, P. (2021, September 11). Fidelity CEO talks “Love” for Bitcoin, Why Blockchain will “Change” markets. CoinDesk.
https://www.coindesk.com/markets/2017/05/23/fidelity-ceo-talks-love-for-bitcoin-why-blockchain-willchange-markets/

98

99

The Treehouse Protocol addresses a critical gap in the fixedincome digital asset market by establishing a standard fordecentralized reference rates. As the digital asset ecosystem
expands, interest rate fragmentation and the absence of abenchmark rate have hindered the development of robust
financial instruments comparable to those in traditional finance. The Treehouse Protocol aims to bridge this gap byleveraging smart contracts and a decentralized consensus
mechanism to create two new financial primitives: Treehouse
Assets (tAssets) and Decentralized Offered Rates (DOR).

Treehouse Labs is the parent brand of TRHX and Treehouse.
The firm builds products that provide infrastructure, data,and standards, enabling people to invest in digital assets withconfidence and foresight. Established in 2021, our team spans
five locations and offers extensive expertise in traditional
finance, digital assets, and data. By setting new benchmarks
and creating robust financial tools, Treehouse aims to bridge
the gap between traditional finance and digital assets.