Interest Rate Model

More uses an interest rate model designed to balance supply and demand within lending pools, with interest rates adjusting automatically, based on how far away the utilization rate of the pool is from the preset target utilization rate.

Each asset is assigned a distinct target utilization rate, reflecting its unique risk profile. For example,

• Stablecoins such as USDC tend to have high borrowing demand and low volatility, so their target utilization rate is typically higher (80-90%).

• More volatile tokens such as ETH or WFLOW have lower set target utilizations (60-70%) due to greater potential for price fluctuations.

Interest Rate Curve

The model uses a two-line, kinked linear interest rate curve, which adjusts dynamically based on utilization.

Key Parameters:

• Base Rate: The minimum interest rate when utilization is very low.

• Slope 1: The rate of increase in the interest rate below optimal utilization rate.

• Slope 2: The sharper rate of increase when utilization exceeds the optimal utilization rate.

Low incline: When utilization is below its target, the interest rate increases gradually, with the interest rate calculated based on this formula:

Interest rate = base rate+(optimal utilization*slope 1)

Steep incline: Once utilization exceeds its target, the interest rate increases sharply. This discourages further borrowing, incentivizes borrowers to pay back their loans, and protects the pool from liquidity exhaustion. This is achieved via this equation.

Interest rate = base rate+(optimal utilization*slope 1)+((utilization rate-optimal utilization)*slope 2)

The graph below shows an example of how the interest rate and utilization rate interact in a stablecoin lending pool.