Last updated
Last updated
The Interest Rate Model is the mechanism that regulates the rewards for lenders for lending their assets and the interest rate that borrowers must pay to borrow the assets. Our Interest Rate Model is dynamic and aims to adapt to any market condition.
Utilization Rate: This parameter is the ratio between the total amount of an asset lent out and the total amount available of that asset. It's calculated as following:
Multiplier: This parameter serves to incentivize or disincentivize the demand for a specific asset. It's decided by owner and it can be any number higher than 0.
Kink: When the Utilization Rate is too high, the demand for a certain asset is disincentivized by changing the Multiplier. The Kink represents the value of the Optimal Utilization Rate, beyond which the Multiplier is changed. It's decided by owner and it can be any number between 0 and 1.
Jumper Multiplier: The value of the Multiplier once the kink is reached. It's decided by owner and it can be any number higher than 0.
Base Rate Fee: Fee paid by the borrower to the platform, this is decided by the owner and it's a constant value. We will setup an initial value of 0.8%, but it will dynamically change over the time based on market conditions.
Reserves: Allocation of the tokens supplied into the lending pool reserved for safety reason and not available to be borrowed. It's decided by owner and it can be any number higher than 0.
These parameters will help us define two other elements:
Borrow APR. This is the interest paid by borrowers for borrowing the assets. It may be calculated in two different ways, purely based on the Utilization Rate current value:
Supply APR. This is the interest paid to lenders for depositing assets in the Lending Pool. It may be calculated in two different ways, purely based on the Utilization Rate current value:
This is how the Supply APR changes the value over the Utilization Rate. The Borrow APR follows the same trend, but it's increased by the Base Rate Fee factor:
