Cryptocurrencies and Interest Rates: Inferring Yield Curves in a Bondless Market

2025-09-04

AI Summary

Cryptocurrency markets lack fixed-income instruments, precluding direct construction of yield curves. Method: This paper introduces a novel methodology to infer implied interest rate curves from derivatives prices—specifically futures and perpetual swaps—by integrating derivative pricing theory, no-arbitrage constraints, and statistical inference techniques; curve-fitting is applied to extract term structures of interest rates for individual cryptocurrencies. Contribution/Results: To our knowledge, this is the first systematic framework for estimating cryptocurrency yield curves in the absence of bond markets. It overcomes the traditional reliance on sovereign or corporate debt data, providing a verifiable and scalable foundation for digital asset pricing, risk measurement, stochastic interest rate modeling, and discounted cash flow valuation. The approach enhances both theoretical rigor and practical applicability of interest rate modeling in decentralized finance, enabling robust calibration and empirical validation against observable market data.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Machine Learning: Other Foundations of Machine Learning
• Reasoning under Uncertainty: Other Foundations of Reasoning under Uncertainty

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Security and Privacy: Cryptocurrency and smart contracts
• Graph Algorithms and Modeling for the Web: Efficient manipulation of static and dynamic Web-related graphs

Abstract

In traditional financial markets, yield curves are widely available for countries (and, by extension, currencies), financial institutions, and large corporates. These curves are used to calibrate stochastic interest rate models, discount future cash flows, and price financial products. Yield curves, however, can be readily computed only because of the current size and structure of bond markets. In cryptocurrency markets, where fixed-rate lending and bonds are almost nonexistent as of early 2025, the yield curve associated with each currency must be estimated by other means. In this paper, we show how mathematical tools can be used to construct yield curves for cryptocurrencies by leveraging data from the highly developed markets for cryptocurrency derivatives.

Problem

• Estimating cryptocurrency yield curves without bond markets
• Leveraging derivatives data to infer crypto interest rates
• Constructing yield curves for bondless cryptocurrency markets

Innovation

• Construct cryptocurrency yield curves mathematically
• Leverage data from cryptocurrency derivatives markets
• Estimate yield curves without traditional bond markets