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Interest Rate Model

The interest rate for each market is determined dynamically, purely based on supply and demand of that market. Interest is calculated and accrued on a per-block basis, with an average of ~1.4s mainnet blocktime and ~0.8s testnet blocktime as of Jan 2023.

Interest Rate Model Parameters for stablecoins

baseRate
criticalRate
criticalPoint
baseSlope
jumpSlope
reserveFactor
0.1%
4.1%
80%
0.05
1.4
10%

Interest Rate Model Parameters for non-stables

baseRate
criticalRate
criticalPoint
baseSlope
jumpSlope
reserveFactor
0.1%
10.1%
80%
0.125
3.5
10% (1.0% temporarily for Flow)
Users will be charged interests for borrowing fungible token assets. The borrow interest rate is algorithmically-set based on supply and demand of the asset - which is reflected by the asset pool utilization rate.

Utilization Rate

poolUtilizationRate=poolBorrowspoolBorrows+poolCash−poolReservepoolUtilizationRate = \frac{poolBorrows}{poolBorrows + poolCash - poolReserve}

Borrow Interest Rate

A critical point (80%) exists in the borrow interest rate model:
  • When utilization rate is below the critical point, a flatter slope is applied
  • Once utilization rate exceeds the critical point, the slope becomes much steeper - This incentives borrowers to pay back the borrowed assets while at the same also incentives suppliers to deposit assets to earn a high APR.

Supply Interest Rate

Supply interest rate is inferred from borrow interest rate after deducting the fraction goes to the pool reserve:
supplyInterestRate=(1−reserveFactor)⋅utilRate⋅borrowInterestRate supplyInterestRate = (1 - reserveFactor) \cdot utilRate \cdot borrowInterestRate

Reserve

Each asset pool maintains a FungibleToken Vault as pool reserve, whose balance comes from a fraction of generated interests, determined by reserveFactor. Reserve serves the purpose of incentivization and risk mitigation, such as protection against smart contracts exploits, oracle attacks, emergency shutdown, etc.
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