SwapGuard

Interest Rate Swap AVS (currently ecdsa based)

User Flow

Initial Setup

1. Users must have active loan positions:

• Fixed Rate User: Has a fixed-rate loan on lending protocol
• Variable Rate User: Has a variable-rate loan on lending protocol

Creating Swap Requests

1. Fixed Rate User

• Submits swap request with:
  • Notional amount (e.g., 10 ETH)
  • Fixed rate (e.g., 6%)
  • Duration (e.g., 1 year)
  • Required margin
• Loan position is verified by operators

2. Variable Rate User

• Submits matching swap request with:
  • Same notional amount
  • Agreeable fixed rate
  • Matching duration
  • Required margin
• Loan position is verified by operators

Swap Matching & Validation

1. Operators validate:

• Both loans exist and are active
• Matching parameters (amount, rate, duration)
• Sufficient margins provided

2. Once validated, swaps are matched
3. Both parties are now in an active swap

Settlement Process

1. Monthly settlements:

• Operators monitor current variable rate
• Calculate rate differential
• Validate both loans are still active
• Execute settlement payments

2. Settlement payments:

• If variable rate > fixed rate:
  • Variable rate user receives difference
• If fixed rate > variable rate:
  • Fixed rate user receives difference

Swap Termination

• Swap continues until duration ends
• Final settlement is executed
• Remaining margins are returned
• Swap positions are closed

Future Improvements

• Implement better handling when users repay underlying loans early
• Develop automated unwinding process with fair penalty structure
• Better integration with lending protocol rate feeds