Building Lending Markets on Uniswap V4

TLDR; Tenor is building an Interest Rate AMM hook on Uniswap V4. The hook functions as an onchain lending order book, enabling users to lend and borrow peer-to-peer. The hook's interest rate model is unopinionated, supports interest rate limit orders, and can be deployed on top of any existing money market to improve their efficiency.

Tenor's Uniswap V4 hook creates an interest rate order book like layer on top of money markets, enabling users to lend directly via Uniswap.

Fully onchain lending order books can not only drastically improve capital efficiency and flexibility, they can also reduce interest rate volatility for lenders and borrowers compared to common utilization based money markets. Money market interest rate spreads range frequently from 20% to 40%, creating an opportunity for more efficient solutions.

Moreover, onchain lending markets are already transitioning to become more modular (e.g. Morpho, Euler, Aave V4). We think that lending order books is the next big module to be built on top of this increasingly modular money market stack.

Uniswap V4 allows the creation of custom AMM curves via NoOp hooks. Where Uniswap has historically enabled users to trade prices, Tenor’s Uni V4 hook facilitates the trading of interest rates. More specifically, Tenor’s Interest Rate AMM uses a set of interest rate ticks at which users can set limit orders, deposit liquidity or trade. The AMM uses a similar mechanic to Uniswap V3 to trade across ticks when users want to borrow or lend.

Tenor's hook facilitates swapping between ERC20 tokens and Zero Coupon bond like instruments. For example, swap USDC for Fixed Rate USDC tokens maturing 2025-12-31. The exchange rate between these two effectively dictates the fixed interest rate at which the user will lend until maturity. The order book lending model requires loan terms with set maturities, effectively facilitating fixed rates lending and borrowing. Fixed rates are used as a means to an end in order to make order book based lending possible.

Tenor's Uni V4 hook supports the deployment of lending order book like AMMs on top of existing money markets. When deploying lending order books on top of an existing money market, the hook inherits the money market risk parameters (e.g., collateral assets, LTVs, oracles), simplifying deployment for curators and eliminating the need to recreate a new risk management layer. Tenor markets require no governance, and are unopinionated making them simple to manage.

Deploying Tenor lending order books on top of money markets enables users to trade p2p at know interest rates. For instance, a lender could set a limit order to lend 1,000 USDC at 8%, while a borrower could then borrow that 1,000 USDC at 8%. Unmatched limit orders and pending liquidity is deposited in the underlying money market, effectively earning the money market yield to minimize the opportunity cost for lenders.

When loans mature, users can simply default back to the money market or set an automatic roll-forward policy, extending the loan to a new maturity. This can be enabled due to Tenor’s collateral framework, allowing positions of different maturities to cross collateralize one another, effectively facilitating passive rolling at maturity, and efficient market making between maturities to solve the fixed rate liquidity fragmentation problem.

Why not deploy Tenor’s AMM as a standalone contract? It comes down to leveraging Uniswap's infrastructure and ecosystem. More precisely:

• Leverage Uniswap X for scalable, efficient cross maturity market-making.

• Facilitate multi hop transactions to enable more complex use cases.

• Periphery contracts & common interfaces.

• Resources and community (e.g. Hook incubator).

Uniswap’s UI currently enables users to Swap, Send, and Buy. Tenor's hook will effectively enable them to Earn.

The Tenor Team is participating in the current batch of the Atrium Academy Uniswap Hook Incubator.

Feel free to reach out on X or at contact@tenor.finance if you’re interested in learning more or see a demo.