> For the complete documentation index, see [llms.txt](https://docs.fira.money/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.fira.money/getting-started/how-it-works.md).

# How It Works

Fira is a fixed-rate lending protocol. Borrowers lock a rate for a defined period. Lenders earn predictable yield through Bond Tokens (BTs). Every position has a maturity date and a rate set at origination.

## The Core Loop

1. **Deposit collateral** — A borrower deposits an accepted collateral asset into a Fira market.
2. **Borrow at a fixed rate** — The protocol mints Bond Tokens (BTs) and Coupon Tokens (CTs). The borrower receives the loan token. The rate is locked.
3. **Maturity** — At the end of the term, BTs redeem 1:1. The borrower repays principal + accrued fee. The lender receives their principal back.

This loop runs the same way in every Fira market. The collateral, loan token, rate, and maturity change — the structure does not.

## Fixed Rates vs. Floating Rates

|                     | Floating-rate DeFi lending               | Fira                                               |
| ------------------- | ---------------------------------------- | -------------------------------------------------- |
| **Rate**            | Changes every block based on utilization | Fixed at origination for the full term             |
| **Term**            | Open-ended — no maturity                 | Defined maturity date                              |
| **Predictability**  | None — rates can spike 10x in a day      | Full — cost and yield known at entry               |
| **Position tokens** | Vault/Market Tokens                      | BT (principal) + CT (yield) — composable, tradable |

## Key Concepts

### Bond Token (BT)

Represents a claim on principal at maturity. Analogous to a zero-coupon bond. Trades at a discount before maturity and redeems 1:1 at term.

### Coupon Token (CT)

Represents the yield portion of a lending position. Accrues interest over time. Can be sold early for upfront yield or held to maturity.

### FiraWrapped (FW)

Wrapped yield-bearing tokens that standardize different collateral assets for use in Fira markets. FW tokens make any yield-bearing asset compatible with Fira's lending infrastructure.

### Markets

Each Fira market is an independent instance defined by a collateral asset, a loan asset, and a set of parameters (LTV, oracle, fee, maturity).

> [Full token mechanics](/protocol/token-mechanics.md) · [Architecture overview](/protocol/architecture-overview.md)

## For Different Users

**Borrowers** borrow at a known cost. No surprise rate hikes. The total cost of the loan is visible before execution.

> [Borrower Guide](/guides/borrower-guide.md)

**Lenders** earn predictable yield by purchasing BTs at a discount. The return is set at purchase — not subject to utilization changes.

> [Lender Guide](/guides/lender-guide.md)

**LPs** provide liquidity to the rate discovery AMM and earn trading fees plus rehypothecation yield.

> [LP Guide](/guides/lp-guide.md)


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