What is the difference between compounded SOFR and term SOFR in the context of digital currencies?

3 answers

• Negi RïñpaeJan 10, 2025 · 7 months ago
  Compounded SOFR and term SOFR are two different ways of calculating the Secured Overnight Financing Rate (SOFR) in the context of digital currencies. Compounded SOFR is calculated by taking the average of the daily SOFR rates over a specific period, usually a month or a quarter. This method provides a more accurate reflection of the interest rates in the market. On the other hand, term SOFR is a forward-looking rate that is based on the expected future SOFR rates. It is calculated using derivatives markets and provides a longer-term view of interest rates. In the context of digital currencies, compounded SOFR is often used for short-term lending and borrowing, while term SOFR is used for longer-term contracts and financial products.
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• Muskan TiwariJan 31, 2023 · 3 years ago
  Compounded SOFR and term SOFR are two different ways of calculating the Secured Overnight Financing Rate (SOFR) in the context of digital currencies. Compounded SOFR takes into account the daily fluctuations in interest rates, providing a more accurate representation of the market conditions. Term SOFR, on the other hand, is a fixed rate that is determined in advance and does not change over the term of the contract. It provides certainty for borrowers and lenders, but may not reflect the current market conditions. In the digital currency market, compounded SOFR is commonly used for short-term loans and margin trading, while term SOFR is used for longer-term contracts and structured products.
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• Kevin MirchandaniOct 11, 2022 · 3 years ago
  In the context of digital currencies, compounded SOFR and term SOFR are two different ways of calculating the interest rates. Compounded SOFR takes into account the daily fluctuations in the interest rates and provides a more accurate measure of the market conditions. On the other hand, term SOFR is a fixed rate that is determined in advance and does not change over the term of the contract. It provides stability and predictability for borrowers and lenders. In the digital currency market, compounded SOFR is commonly used for short-term lending and borrowing, while term SOFR is used for longer-term contracts and financial products. It is important for digital currency traders and investors to understand the difference between these two rates and how they can impact their investment decisions.
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