How Is an Interest Rate Swap Derivative Utilized in Traditional Finance versus a Potential DeFi Equivalent?

In traditional finance, an interest rate swap is an agreement between two parties to exchange future interest payments, typically a fixed rate for a floating rate, to manage interest rate risk. In DeFi, an equivalent derivative allows users to swap fixed-rate interest payments for variable-rate payments on lending protocols.

This is used to hedge against fluctuating borrowing costs or to lock in a guaranteed return on a deposit.