What Is Risk-free rate?

The expected return for the money that is considered (almost) risk-free.

In traditional finance, the risk-free rate is typically derived from government-issued debt instruments. In the United States, the US Treasury note yield is the standard proxy for the risk-free rate. In the eurozone, the ECB key interest rate serves as a reference. Although these are considered risk-free, they still carry some residual risks such as sovereignty risk.

In decentralised finance, a risk-free rate is considered to be a US dollar lending pool rate, like one you would get from Aave USDC pool.

Historical risk-free rate data can be obtained programmatically from the FRED API (e.g. the DGS10 series for the 10-year Treasury yield) or the ECB Data API for eurozone rates.

See also

• US Treasury note

• ECB key interest rate

• Benchmark

• Stablecoin

• Lending pool

• Passive strategy

• Drawdown

• FDIC national rate