The Secured Overnight Financing Rate (SOFR) is the U.S. financial system's response to the shortcomings of the London Interbank Offered Rate (LIBOR). SOFR serves as a benchmark interest rate for U.S. dollar-denominated loans and derivatives, reflecting the cost of borrowing cash overnight, collateralized by U.S. Treasury securities.

🔍 Why Was SOFR Introduced?

LIBOR, once the global standard for setting interest rates, was based on estimates from banks and became susceptible to manipulation, leading to significant scandals. In contrast, SOFR is grounded in actual transaction data from the U.S. Treasury repurchase (repo) market, making it more transparent and reliable.

⚙️ How Is SOFR Calculated?

SOFR is calculated by the Federal Reserve Bank of New York using transaction data from three segments of the repo market:

  1. Tri-party repo data

  2. General Collateral Finance (GCF) repo transactions

  3. Bilateral Treasury repo transactions cleared through the Fixed Income Clearing Corporation's Delivery vs. Payment service.

The rate is published each business day at approximately 8:00 a.m.

📈 SOFR's Role in the Financial Ecosystem

SOFR has become integral in pricing various financial products, including adjustable-rate mortgages, corporate loans, and derivatives. Its adoption enhances market stability by providing a more accurate reflection of borrowing costs.

🔗 Relevance to the Crypto Market

While SOFR is rooted in traditional finance, its influence extends to the crypto market, especially in the realm of decentralized finance (DeFi). Stablecoins and lending protocols often seek benchmarks that mirror traditional financial instruments. Understanding SOFR aids in developing crypto products that align with established financial standards, fostering greater integration between traditional and digital finance.

📊 Current SOFR-Linked Investment Product

One example of a SOFR-linked investment product is the Amplify Samsung SOFR ETF (Ticker: SOFR). As of the latest data:

  • Price: $100.485

  • Change: +0.02000 (0.00020%)

  • Volume: 953

  • Latest Trade Time: Saturday, May 24, 00:19:00 UTC

Here is a chart showing the trend of SOFR (Secured Overnight Financing Rate) over a few days in May 2025. Let me know if you'd like to see a longer historical trend or compare it with crypto-related rates.

Understanding SOFR is crucial for both traditional and crypto market participants, as it represents a shift towards more transparent and reliable financial benchmarks.

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