# Interest Rate Model

MORE Markets builds on top of the Morpho Adaptive Interest Rate Model (IRM). Specifically, for standard borrowers, a fixed IRM known as the AdaptiveCurveIRM is applied. For premium borrowers, additional factors related to credit scores and personalized LLTVs add complexity to the interest rate calculation that is addressed by an efficient and fair framework described in the second part of this section.

## Morpho AdaptiveCurveIRM

The basic AdaptiveCurveIRM is designed to keep the ratio of borrowed to supplied assets, or utilization rate, around a strategic target of 90%.

In MORE Markets, the supplied collateral is not rehypothecated, which eliminates the systemic risks typically associated with rehypothecation and alleviates the liquidity constraints that arise from liquidation requirements. This fosters more effective markets, allows for a higher target utilization of capital, and reduces penalties for illiquidity, thereby offering more favorable rates for both lenders and borrowers.

The IRM address of a MORE market is permanent — it cannot be altered after it is deployed. The AdaptiveCurveIRM autonomously adjusts to fluctuations in market conditions, such as variations in interest rates across platforms or shifts in supply and demand.

Its flexibility ensures robust performance across any asset, market, and scenario, which is ideal for permissionless market creation.

## Operational Mechanics

The model incorporates two key mechanisms that work in tandem:

**The Curve Mechanism**

**The Curve Mechanism**

This function mirrors interest rate curves applied in traditional lending protocols. It effectively manages short-term capital utilization, ensuring efficiency and preventing scenarios of extremely high utilization that might trigger liquidity shortages.

**The Adaptive Mechanism**

**The Adaptive Mechanism**

This dynamic element refines the curve over time to align the spectrum of rates with ongoing market trends. It operates by adapting the value of the interest rate at target utilization, thereby shifting the entire curve:

When utilization climbs above the target, the curve shifts upward, promoting loan repayments and reducing utilization.

Conversely, when utilization dips below the target, the curve shifts downward, encouraging borrowing and boosting utilization.

The rate of adjustment for the curve depends on how the current utilization compares to the target— the greater the deviation, the quicker the adjustment. This gradual modification allows the rates to explore and eventually stabilize, aligning the interest rate at the target utilization with the market equilibrium.

## IRM Adaptations for Undercollateralized Loans

The current MORE Markets framework categorizes borrowers into standard and premium segments. Premium borrowers are further segmented based on their credit scores, affecting their Loan-to-Value (LTV) ratios and corresponding interest multipliers. These multipliers are dynamically adjusted according to a curve that reflects each borrower's credit score and the total value of assets borrowed that exceeds the standard LLTV threshold.

To illustrate, consider five categories of premium borrowers, ranging from A to E. The interest rate starts at a standard 1x for an LLTV of 90%. For premium borrowers, the LLTV ratios and multipliers are as follows:

Premium Category A: 200% LLTV, Interest multiplier at max borrowing = 2x

Premium Category B: 175% LLTV, Interest multiplier at max borrowing = 2x

Premium Category C: 150% LLTV, Interest multiplier at max borrowing = 2x

Premium Category D: 125% LLTV, Interest multiplier at max borrowing = 2x

Premium Category E: 100% LLTV, Interest multiplier at max borrowing = 2x

### Fine-Tuned Mechanics

**LLTV Stepper Mechanism**: The protocol introduces a stepped interest recalibration for every 5% change in LTV, reducing sensitivity to minor fluctuations and lowering computational demands.**Scheduled Adjustments**: Interest rates are recalculated at predetermined intervals of 6 hours or if collateral values shift by 5% or more.**Adjustment on Interaction**: In order to offset the gameability of scheduled adjustments whereby a user can borrow at a low LTV just after an adjustment and ramp up LTV between adjustments, recalculations are also triggered when the`supply`

,`withdraw`

,`borrow`

,`repay`

,`withdrawCollateral`

and`liquidation`

operations are called.**Interest Calculation at a Category Level**: Instead of calculating interest at an individual level, the protocol manages interest accrual at the category level to significantly decrease computational overhead.

### LLTV Steppers and Scheduled Rate Adjustments

To transition to a fully dynamic interest rate model, each borrower's position must be multiplied by a personal multiplier, determined by how much their LTV exceeds the standard rate and based on their borrower category. MORE applies a fixed borrow rate multiplier for each category of premium borrowers, resulting in individual curves for each category.

For example, a multiplier is applied for every 5% of additional borrowing for each category beyond the standard LLTV of 90%. In the scenario described above, this would mean that:

Premium Category A has 22 steppers (90% to 200% LLTV)

Premium Category B has 17 steppers (90% to 175% LLTV)

Premium Category C has 12 steppers (90% to 150% LLTV)

Premium Category D has 7 steppers (90% to 125% LLTV)

Premium Category E has 2 steppers (90% to 100% LLTV)

The result is a total of 60 categories. Interest dynamically adjusts within each category.

To illustrate, within Premium Category A, a borrower with a 110% LTV would have an interest multiplier of 1.1x, while a 175% LTV increases the multiplier to 1.8x. Similarly within Premium Category B, a borrower with a 110% LTV would see an interest multiplier of 1.2x, while a 175% LTV increases the multiplier to 2x.

This model is strategically effective as it correlates credit score with borrowing volume and adjusts for the increased risk at higher LTV levels. However, this approach diverges from traditional fixed LTV models that utilize an IRM that varies only with pool utilization and/or velocity.

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