Introduction

Timeswap is the first lending protocol that doesn’t rely on oracles. This innovation allows Timeswap to create lending markets for any ERC-20 token. All loans on the platform are non-liquidatable and come with fixed terms. By eliminating oracles from the equation, Timeswap removes the risk of oracle manipulation, a risk that is often seen in many other DeFi protocols. Thanks to this oracle independence, Timeswap can support lending markets for any ERC-20 token.

Funding Background

Funding Background(Source: https://www.rootdata.com/Projects/detail/Timeswap?k=MzA5OA%3D%3D）

Timeswap completed its seed funding round on October 22, 2021. While the amount raised was not disclosed, the round was led by Multicoin Capital, with participation from Mechanism Capital, DeFiance Capital, and other investors.

Team Members

Team Members(Source: https://www.rootdata.com/Projects/detail/Timeswap?k=MzA5OA%3D%3D）

The core team of Timeswap includes Founder and CEO Ricsson Ngo, Co-founder Ameeth Devadas, and Co-founder Harshita Singh. Ricsson and Ameeth both have backgrounds in traditional finance, while Harshita’s previous role was at Walmart. The core team has limited experience in the Web3 space.

Main Features

Timeswap’s core feature is lending. Using its unique AMM (Automated Market Maker) mechanism, the market has three main participants: lenders, borrowers, and liquidity providers.

AMM Mechanism Diagram

Lenders
A lender provides funds to the Timeswap pool (from which borrowers can borrow), earning fixed interest in return. 10% of the interest the lender earns is paid to liquidity providers (LPs) as a transaction fee.

Borrowers
A borrower takes out a loan from the Timeswap pool, where both lenders and LPs provide liquidity. Borrowers do not need to actively manage their positions (since there is no liquidation risk). Instead, they pay fixed interest upfront and lock collateral. The amount of collateral locked is equal to the interest that will accrue on the borrowed principal. Once the loan is repaid (principal + interest), the collateral is returned. 10% of the interest paid by borrowers is also given to liquidity providers (LPs) as a transaction fee.

Liquidity Providers (LPs)
An LP provides one-sided liquidity to the Timeswap pool, acting as a counterparty to lenders and borrowers. In exchange, LPs earn the transaction fees (10% of the interest) paid by lenders and borrowers.

Lending Market

Timeswap is available on multiple platforms, including Arbitrum, Mantle, Polygon PoS, Polygon zkEVM, and Base.

AMM Mechanism

Timeswap uses a time-weighted constant and product market maker (DW-CSPMM) to create permissionless lending pools for any pair of ERC-20 tokens. Lenders, borrowers, and LPs interact with the AMM, which determines the interest rates based on market activity.

AMM Formula

AMM Formula

Where,

• X is the amount of token A in the AMM, held by lenders and LPs.
• Y is the amount of token B in the AMM, held by lenders and LPs.
• Z is the amount of interest per second in the AMM, contributed by borrowers and LPs.
• K is the constant product invariant.
• d is the remaining time until the pool matures (in seconds).

Z represents the interest earned per second in the AMM. Since “d” is the remaining time in the pool, Z * d gives the total interest accumulated in the pool. While Z fluctuates based on the pool’s borrowing and lending activities, the value of d decreases over time, meaning the total interest also reduces as time passes.

Timeswap’s AMM is time-weighted because its formula includes a time component (d), ensuring that lenders and borrowers only accrue or pay interest during the periods they actively interact with the pool.

Interest changes over time.

Each pool also has a crucial parameter, TP, which determines the ratio of how much token A needs to be locked in order to borrow token B.

For example, in an ETH/USDC pool with a TP of 2,000 ETH/USDC, the borrower can make transactions depending on the TP and the spot price:

• Depositing 1 ETH will allow borrowing of 2,000 USDC
• Depositing 2,000 USDC will allow borrowing of 1 ETH

This means that all transactions within the pool are collateralized either by 2,000 USDC or 1 ETH. The pool’s TP is set by the pool’s creator (the first liquidity provider, or LP).

Lenders

Lenders are users who provide funds to the Timeswap pool, enabling borrowers to take out loans while earning fixed interest.

Lender Model

In a USDC/ETH pool, a lender can lend out USDC, while a borrower can lock ETH as collateral to borrow USDC. Once the borrower locks the collateral, they receive a token (BT) that serves as proof of the loan and will be used in the settlement of the repayment.

Since Timeswap loans are fixed-term and non-liquidatable, the lender will receive either the provided asset (e.g., USDC) or the collateral asset (e.g., ETH) at the end of the loan period.

The Generation of TP

The outcome of the transaction depends on the borrower’s decision. In any case, the lender always receives the interest that was locked in advance (since the borrower pays interest upfront). If the borrower repays the debt, the lender gets the provided asset. If the borrower defaults, the lender receives the collateral.

The price level at which the borrower’s actions are expected to change is called the transition price (TP).

For instance, after the lender provides USDC to the ETH/USDC pool, if the borrower, based on their interests, chooses to repay the debt, the lender will receive the USDC asset along with interest. However, if the borrower decides not to repay, the lender will receive the ETH asset instead. In this case, the difference in value between USDC and ETH is the transition price (TP).

This means the risk for lenders in Timeswap is different from traditional DeFi lending protocols (like AAVE or Compound). In traditional DeFi protocols, liquidation helps maintain the health of the protocol (and protects the lender). Lenders in those protocols can often “lend and forget.” But in Timeswap, lenders need to manage their own risk/reward balance when lending to the liquidity pool.

While the loan term is fixed, lenders have the option to exit early. However, early exit may cause slippage, meaning they may not receive the expected amount due to changes in the pool’s liquidity or market conditions.

Borrowers

A borrower is someone who takes out a loan from the Timeswap pool, where liquidity is provided by lenders and liquidity providers. They don’t need to actively manage their positions since there’s no liquidation risk.

Borrower Model

In a USDC/ETH pool, where lenders lend USDC, borrowers can lock ETH as collateral to borrow USDC.

Since Timeswap loans are fixed-term and non-redeemable, when the loan matures, the borrower has two options: they can either repay the loan or forfeit the collateral. This decision is based on comparing the debt amount to the value of the collateral they’ve locked in. Regardless of which option they choose, interest will be paid to the lenders and liquidity providers. If the borrower defaults, the interest is paid in the form of collateral, while if they repay the loan, interest is paid in the borrowed asset. The price level at which the borrower’s decision (whether to repay or default) is expected to change is known as the transition price (TP). The word “expected” is important here because this price doesn’t factor in individual borrowers’ debts or whether they act rationally according to economic incentives.

For example, in contrast to the lender’s scenario, as a borrower, you would need to provide ETH as collateral. After locking it into the pool, you can borrow USDC and receive CCT tokens representing your locked collateral and the borrowed position. These tokens act as proof for retrieving your collateral after the loan is repaid. The value of CCT will fall to zero once the debt matures. Based on market prices and interest rates, borrowers will decide whether to repay the debt. In this case, if the borrower repays the debt, they can claim their collateral (USDC). If they choose not to repay, they will lose their collateral (ETH) instead.

This structure makes borrower risk in Timeswap different from traditional DeFi lending protocols (such as AAVE or Compound). In traditional DeFi protocols, liquidation and liquidation fees force borrowers to actively manage their positions by monitoring their collateral against their debt. In contrast, borrowers in Timeswap don’t need to manage their positions—they simply decide whether to repay based on the value of the collateral and debt at the time the loan matures. This makes borrowers more like “borrow and forget” participants. Essentially, borrowers can unlock capital while still protecting themselves from the downside risk of their collateral.

Although loans are fixed-term, borrowers have the option to pay off their debt early. However, early repayment may cause slippage, meaning the borrower might not get the expected amount due to changes in market conditions or liquidity in the pool.

Liquidity Providers (LPs)

A liquidity provider (LP) is a participant who contributes liquidity to the Timeswap pool, acting as the counterparty for both lenders and borrowers in exchange for transaction fees.

LP Model

The role of liquidity providers in Timeswap is similar to that of LPs in Uniswap. In Uniswap, LPs serve as the counterparties to buyers and sellers, buying and selling assets via the liquidity pool in exchange for transaction fees. In Timeswap, LPs borrow assets from lenders and lend them to borrowers in return for transaction fees.

Traditional DeFi lending protocols, like AAVE and Compound, typically involve only two main participants: 1) Lenders, and 2) Borrowers. This creates a dynamic where interest rates fluctuate based on how much liquidity is being used in the pool. In contrast, Timeswap offers fixed returns or fixed interest payments to lenders and borrowers when they open positions, and both parties can exit at any time before the loan matures. An LP is needed to match the total interest paid by lenders with the interest received from borrowers.

LPs contribute assets such as USDC and ETH to the pool. In Timeswap, the way asset prices change is driven by the same AMM mechanisms as in other protocols, but the key difference is in how price changes pass through the system: price changes are not directly passed to the LPs but instead flow through the borrowers. The borrowers’ actions then influence the liquidity providers. This means that the assets LPs receive at the end of the loan term depend on the decisions made by the borrowers. For example, if the borrower repays their debt (such as USDC), the liquidity provider will receive the USDC they provided. However, if the borrower defaults on the loan, the collateral (ETH) will be liquidated, and the LP will experience a loss, similar to impermanent loss. In return for this risk, LPs earn fees from each transaction in the pool.

While Timeswap loans are fixed-term, LPs have the option to withdraw their positions early. However, it’s important to note that early withdrawal may result in slippage, which means they could receive less value than expected.

LPs provide liquidity (such as USDC) and receive ERC-1155 receipt tokens, known as liquidity tokens (LT). Like Uniswap, the first LP in a pool (the pool creator) can set the initial parameters for the Timeswap pool.

Risks for Different Participants

Lenders

Lenders might not receive the exact asset they originally lent (for example, a lender might lend USDC, but if the borrower defaults, they could receive ETH instead at maturity).

According to the AMM setup, the underlying assets in the pool can be two types of tokens (Token A or Token B), and will change based on the relationship between the transition price, external market prices, and arbitrage behavior. Regardless of the outcome, the lender will always receive a fixed interest.

Borrowers

The borrower must repay the debt before maturity. Otherwise, their collateral will be confiscated.

The CCT held by the borrower will become worthless at maturity, and the confiscated collateral will be distributed to the lender and LP.

Liquidity Providers (LPs)

In addition to the default risk that the borrower fails to repay on time (in which case the LP receives the borrower’s collateral), the LP also assumes the risk of divergence loss.

Divergence Loss: Similar to impermanent loss, divergence loss is the difference between holding tokens in a wallet and deploying them into the AMM. In DEXs, divergence loss is calculated based on the exchange rate between tokens. Since the Timeswap AMM is used for lending and has increased single-token liquidity, divergence loss occurs based on market interest rates as a reference.

Tokenomics ($TIME)

Token Information

Token Information(Source: https://www.coingecko.com/en/coins/timeswap）

As of February 3, 2025, according to the information on CoinGecko, the $TIME token has reached its maximum circulating supply of 1.75 billion. The current market capitalization is approximately $1.5 million. The token was issued on Arbitrum and Hyperliquid.

Token Distribution

Token Distribution(Source: https://timeswap.gitbook.io/docs/deep-dive/tokenomics)

• Community Round (Fjord): 10%, 175,000,000
• Airdrop: 10%, 175,000,000
• Community Allocation (2025): 9.00%, 157,500,000
• Community Allocation (Post-2025): 20.00%, 350,000,000
• HIP2：1.00%，17,500,000
• Team: 20.00%, 350,000,000
• Investors: 15.00%, 262,500,000
• Market Making 1: 2.00%, 35,000,000
• Market Making 2: 2.00%, 35,000,000
• Treasury Operations: 11.00%, 192,500,000

Token Unlocking

The unlocking details for different groups are as follows:

• Community Round (Fjord): Fully distributed to users
• Airdrop: Fully distributed to users, with 0.50% allocated to HypurrCo stakers (February 2025)
• Community Allocation (2025): Allocated until January 2026 for liquidity mining, growth, marketing, and ecosystem purposes
• Community Allocation (Post-2025): 10% will be unlocked in 2026, and another 10% will be unlocked in 2027
• HIP2: Locked liquidity for HIP-2
• Team: 12-month lock-up period, followed by 36 months of linear release
• Investors: 6-month lock-up period, followed by 24 months of linear release
• Market Making 1: Unlocked but not yet distributed
• Market Making 2: Unlocked but not yet distributed
• Treasury Operations: Not applicable

Conclusion

In terms of the protocol’s nature, Timeswap is more akin to a structured derivative product rather than a traditional lending protocol. It separates out the time value of tokens and provides a new tool for professional traders. However, similar to many other structured products, as the specialization increases, the user base for Timeswap becomes narrower compared to traditional lending protocols. On the other hand, among the thousands of tokens available, only a few have a true time value, and for most, the impact of time value on the overall worth is often overshadowed by other factors such as unlocking schedules or market makers. Some options products also provide the ability to trade time value. Therefore, the widespread adoption of structured lending products requires time and capital-building.