How Lending & Borrowing interest rates are calculated.
Lending and Borrowing interest rates are calculated due to Utilisation rate.
Utilisation Rate = Total Borrow / Total Lend
Borrowing interest rate model
At low Utilisation rate, the Borrowing rate is calculated after below formula:
Borrowing Rate= rf +2 ∗ Utilisation Rate ∗ rf
- rf — risk fee free rate: the rate at which #dev DeFi manages to get from other quasi-risk-free protocols.
Borrowing interest rate model of #dev DeFi uses the Kick parameter which follows a jump rate model. When the Utilisation rate reaches a certain ratio, the graph or formula for Borrowing rate changes, we call that the Kick point.
Formula to calculate Borrowing rate changes after Kick point:
Borrowing Interest Rate = (max−rKick)∗ Utilisation Rate / (1−Kick)−(max∗ Kick−rKick)/(1−Kick)
- Kick: the point in the model where the rate of increase in Borrowing interest rate with respect to Utilization rate is at a higher rate, the value of Kick point is determined at 80%.
- rKick - rate at Kick: value of Borrowing interest rate at Kick.
- max: maximum value of Borrowing interest rate which is calculated at 100% Utilisation rate
Each asset has different rf, rKick and max parameter.
Lending interest rate model
The return to Lenders is determined as:
Lending Interest Rate = Borrowing Interest Rate ∗ UtilisationRate
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