How much interest to pay?

Users pay interest on the borrowed amount. The interest rate varies per asset and the available capital in the pools (utilization rate). Utilization rate is calculated as follow:

$$U = \frac{TotalBorrowed}{TotalLiquidity}$$

Supplied assets (pools) that have a low utilization rate bear a lower interest for users to borrow. Pools that have a high utilization rate bare a higher interest rate.

The variable interest rate is designed so that it either encourages to borrow or to repay and/or provide liquidity for users as those pools will naturally yield higher returns. Keep in mind that when the utilization rate of a pool is high, the protocol can experience liquidity-crunches and can result in volatile interest rate.

Interest rates for both borrowing and supplying vary on the utilization rate.

To mitigate this, the interest rate curve is split in two parts, one where the utilization rate is optimal and another that is sub-optimal. Before reaching the sub-optimal threshold, interest rates increase slowly with utilization. Once it reaches a sub-optimal utilization rate, the borrow rates increase sharply.

When the utilization rate is less than or equal to the optimal utilization rate follows:

$$if~U≤U optimal : Rt=R0​ + \frac{Ut}{Uoptimal}Rslope 1 ​$$

When the utilization rate is above the optimal utilization rate, then:

$$if~U>Uoptimal : Rt=R0​ + Rslope1 + \frac{Ut -Uoptimal}{1 -Uoptimal}Rslope 2$$

• $U$: Utilization rate;
• $Uoptimal$: Target utilization rate;
• $Rt$: Interest rate at a certain time;
• $R 0$: Base or starting interest rate;
• $Ut$: Current utilization
• $Rslope1$: Interest rate slope equal or below $Uoptimal$;
• $Rslope2$: Interest rate slope beyond $Uoptimal$.

This means that up-until an optimal utilization rate interest rates increase non-linearly (read: small) curve until a sub-optimal utilization rate is reached, during which the interest rate raises sharply to accommodate more optimal supply and demand.

Borrow Interest RateRisk

Learn more about interest rate models

Borrow rates

You can review the current borrowing rate at any time in the Markets and Dashboard section. Moreover, to learn more about the utilization rate and interest rate of supported assets, navigate to the details page on the Replete user interface. In short it depends on two factors:

• Utilization rate that is derived from market supply and demand;

• Asset interest rate curve, that is uniqued and different per asset.

Example of interest rate model