Testnet Interest Rate Model

Interest Rate Model

We use a jump rate model to determine interest rates based on pool utilization. This model adjusts borrow and supply rates depending on how much of the available liquidity is being used.

Utilization

Utilization is calculated as:

utilization = total_borrowed / (total_supplied + total_borrowed)

• When utilization is low, borrow rates are low.

• As utilization increases, borrow rates rise to incentivize more supply and limit excessive borrowing.

---

Borrow Rate

The borrow rate increases linearly up to a kink point (80% utilization). Beyond the kink, the rate increases more steeply.

Parameters used on testnet:

• baseRate: 10%

• slopeLow: 10%

• slopeHigh: 50%

• kink: 80%

Borrow rate formula:

if utilization <= kink:
    borrow_rate = baseRate + slopeLow * utilization
else:
    borrow_rate = baseRate + slopeLow * kink + slopeHigh * (utilization - kink)

---

Supply Rate

Suppliers earn a portion of the interest paid by borrowers. A small cut is kept by the protocol via the reserve factor.

• reserveFactor: 10%

Supply rate formula:

supply_rate = utilization * borrow_rate * (1 - reserveFactor)

---

Interest Rate vs Utilization graph

Configurability

These parameters are configurable per pool. What’s shown above reflects the initial values used on the testnet and are not final. Final parameters for each pool will be determined prior to mainnet launch based on testing, risk, and market conditions.

---

Examples

Utilization = 54%

• Borrow rate:

  0.10 + 0.10 * 0.54 = 0.154 → 15.4%

• Supply rate:

  0.54 * 0.154 * 0.9 = 0.0749 → 7.49%

Utilization = 90%

• Borrow rate:

  0.10 + 0.10 * 0.8 + 0.50 * (0.90 - 0.8) = 0.18 → 18%

• Supply rate:

  0.90 * 0.18 * 0.9 = 0.1458 → 14.58%

---

This setup provides predictable rates under normal conditions, reacts quickly to high utilization, and keeps pools healthy while rewarding both borrowers and suppliers.