Interest Rate Framework

The lending protocol uses a dynamic rate model that automatically adjusts to balance supply and borrowing activity. This mechanism ensures lenders receive competitive yields while borrowers face fair costs, keeping the overall system healthy and efficient.

Core Concepts

Utilization Ratio (U)

This ratio shows how much of the pool’s liquidity is currently borrowed relative to the total deposits.

$$U=Total Supplied / Total Borrowed​$$

A higher utilization means most funds are borrowed, which generally drives interest rates upward.

Variable Rate: Moves up or down based on the utilization ratio.

Interest Rate Calculations

Variable Borrow Interest Rate (i_vb):

The variable interest rate depends on the utilization ratio and is calculated using the following formulas:

$$\text{If } U_t < U_{opt} : \quad i_{vb}(t) = R_{v0} + \frac{U_t}{U_{opt}} \times R_{v1}$$

$$\text{If } U_t \geq U_{opt} : \quad i_{vb}(t) = R_{v0} + R_{v1} + \frac{U_t - U_{opt}}{1 - U_{opt}} \times R_{v2}$$

Deposit Interest Rate

The deposit interest rate, earned by depositors, is derived from the interest paid by borrowers.

$$i_d(t) = U_t \times i_b(t) \times (1 - RR)$$

( RR ) is the retention rate, representing the protocol's fee.

i_b(t) is the overall borrow interest rate, which is a weighted average of variable and stable borrow rates.

Borrow Interest Amount

The stable borrow interest amount is the sum of the stable borrowed amounts multiplied by their respective interest rates.

$$O_{sb}(t) = \sum B_i \times i_{sb}(i)$$

Collateral and Borrowing Limits

Collateral Factor (CF)

Each asset has a collateral factor (CF), which sets the maximum amount you can borrow against it, expressed as a percentage of its value.

Example: If USDC has a CF of 80%, depositing $10 USDC allows you to borrow up to $8 worth of assets.

Borrowable Amount (BA)

The total borrowing capacity is calculated from the collateral you provide, its market price, and the asset’s collateral factor:

$$BA(t) = \sum \left( A^t_i \times P_i \times CF_i \right)$$

Borrow Factor (BF)

Some assets are treated as riskier when borrowed, so they are adjusted with a borrow factor (BF). This increases the effective exposure when borrowing volatile assets.

Example: If BTC has a BF of 110%, then borrowing $10 BTC is treated as $11 of risk exposure in the system.