TermMax's Interest Rate Discovery Mechanism: How the Market Forms True Prices Through Game Theory

In the TermMax system, interest rates are not "set" by protocol parameters but are continuously discovered through real trading activities. @TermMaxFi liberates interest rates from backend configurations, returning them to the market itself, allowing participants with different capital positions and time expectations to engage in a game during the trading of assets like FT, XT, GT, etc. This process ultimately consolidates into a reference true interest rate level. This mechanism makes TermMax more like an active interest rate market rather than a simple lending tool.

The core of interest rate discovery lies in the natural divergence of participants' judgments about "time value." Some prioritize certainty of returns and are willing to pay opportunity costs to lock in yields; others are willing to bear volatility risks, betting on future interest rate changes to generate gains. These differing judgments are directly reflected in the buy and sell prices of related assets, and price fluctuations themselves are the externalized form of interest rate information. TermMax does not interfere with these differences but provides a sustainable structured environment for them to occur.

As the maturity date approaches, uncertainty about the future gradually diminishes, and prices and interest rates are continuously adjusted. The closer to expiration, the shorter the remaining time, and the less room there is for interest rate volatility, leading to a gradual strengthening of market consensus. This natural convergence process ensures that interest rate discovery remains dynamic yet does not diverge infinitely, mechanically preventing extreme pricing from destabilizing the system.

It is worth noting that TermMax's interest rate discovery does not rely on a single asset or a single trading direction but is achieved through the combined effect of multiple structured assets. FT provides a pricing anchor for certain yields, XT reflects market expectations of interest rate volatility, and GT amplifies risk and reward, further enhancing the sensitivity of price signals. This multi-layered trading structure makes interest rate signals more three-dimensional and closer to the complexity of real markets.

Under this mechanism, @TermMaxFi does not need frequent adjustments of incentives or parameters to "guide" the interest rate level. Instead, the protocol functions more like a neutral infrastructure, responsible only for rule enforcement and settlement, with interest rates determined by the genuine willingness of participants. This decentralized interest rate discovery approach not only enhances price credibility but also provides a more valuable reference for long-term funds.

In the long run, TermMax's interest rate discovery mechanism has the potential to become an important on-chain reference for term interest rates. It does not pursue short-term high yields but accumulates credible time-price signals through continuous market game theory. This "slow variable" design is one of the fundamental differences between @TermMaxFi and traditional DeFi lending protocols.