Interest Rate Risk

Fira markets—both fixed-maturity ("fixed-rate") and floating-rate—are exposed to interest rate volatility. Rates can move rapidly, may be difficult to predict, and can materially affect the cost of borrowing, the value of positions, and the ability to enter or exit positions on expected terms. This section is not exhaustive and should be read together with the broader Fira risk disclosures and protocol mechanics.

Description

Fixed-maturity ("fixed-rate") markets — price / discount volatility

In Fira fixed-maturity markets, the "fixed" rate is implied by market pricing—primarily the price (discount) of BT relative to its underlying asset (e.g., FW-USDC). Because BT pricing is market-driven, changes in market conditions (liquidity, demand for borrowing/lending, volatility, risk appetite) can cause the BT discount to widen or tighten.

As a result, the effective rate implied by swapping into or out of a fixed-maturity position can change over time, particularly if you settle, unwind, or refinance before maturity.

Floating-rate markets — utilization volatility

In Fira floating-rate markets, borrowing rates are a direct function of utilization (borrowed liquidity relative to supplied liquidity). Utilization can change abruptly due to supply/demand shocks—e.g., large lender withdrawals, sudden borrowing spikes, or liquidity migrating elsewhere. When utilization rises quickly, borrowing rates may increase sharply and remain elevated until utilization normalizes via repayments or additional supply.

How This Risk Can Materialize (Illustrative Scenarios)

• Early settlement in fixed-maturity markets: A borrower who settles or exits a fixed-maturity position before maturity may realize an implied rate that differs from the rate observed at origination. Depending on market pricing at the time of exit, the realized rate may be higher or lower, and may deviate materially from expectations.

• Rate spikes in floating-rate markets: If a large share of unutilized liquidity is withdrawn or borrowed, utilization can approach upper bounds and borrowing rates may increase rapidly and materially, potentially resulting in unexpectedly high interest costs, forced deleveraging, or liquidation risk (where applicable).

These outcomes can occur even if you do not change your position, due to market movements, liquidity conditions, and third-party behavior.

Mitigations (Design Intent) and Important Limitations

Fira includes mechanisms intended to reduce (not eliminate) extreme interest-rate outcomes. These mitigations are not guarantees and may be insufficient under stressed market conditions, adverse liquidity, smart-contract failures, oracle issues, governance actions, or broader ecosystem events.

Fixed-maturity markets — liquidity concentration parameters

Liquidity may be concentrated around expected or "reasonable" implied rate ranges, with limited liquidity at extreme rates. This design can reduce the likelihood that swaps clear at extremely adverse implied rates, but:

• liquidity may still be insufficient during volatility,

• large trades may incur significant slippage,

• implied rates can still move materially, especially under stress.

Borrowers who settle before maturity may be able to estimate a bounded range of outcomes under normal conditions, but realized outcomes can still be adverse and depend on market liquidity and prevailing prices at the time of settlement.

Floating-rate markets — curated liquidity management

Fira may rely on curators (or similar roles/mechanisms) to manage liquidity allocation, set risk parameters, and respond to elevated utilization—potentially by maintaining reserves or supplying additional liquidity. However:

• curators may be unable or unwilling to act in time,

• reserves may be insufficient,

• liquidity may be constrained by market conditions,

• curator actions may be limited by governance, technical constraints, or external dependencies.

Accordingly, utilization-driven rate spikes may still occur and may persist longer than expected.

User Considerations (Non-Exhaustive)

• Fixed-maturity ≠ guaranteed fixed cost before maturity. If you may need to exit early, assume your realized rate can differ materially from the implied rate at entry.

• Plan for rate spikes in floating markets. Consider the possibility of sudden and sustained increases in borrowing costs, especially in thin liquidity conditions.

• Monitor liquidity and utilization. Rapid changes can occur without notice due to other users’ actions or market events.

• Do not rely solely on interface estimates. Displayed rates are indicative and may not reflect execution prices, slippage, or post-trade utilization dynamics.

Reminder: This risk disclosure is provided for informational purposes only, does not constitute financial advice, and does not eliminate the possibility of loss. Fira participation remains speculative and high-risk.