# Interest rate model

There are a number of interest rates used to determine the interest paid on borrowings and interest received on deposits. There are also interest indexes which are used to track the accrued interest.

To differentiate the variable parameters from the stable ones, we are going to use the subscript

$s$

for stable and $v$

for variable.
The variable borrow interest rate $i_{vb_t}$

and stable borrow interest rates $i_{sb_t}$

are calculated based on the optimal utilisation ratio $U_{opt}$

and optimal stable to total debt ratio $0_{ratio}$

set by the protocol.If

$U_t < U_{Opt}$

$i_{vb_{t}}=R_{v0}+ \frac{U_t}{U_{Opt}}*R_{v1}$

If

$U_t \geqslant U_{opt}$

$i_{vb_t}=R_{v0}+R_{v1}+\frac{U_t-U_{opt}}{1-U_{opt}}* R_{v2}$

If

$U_t \leqslant U_{opt}$

$i_{sb_t}=(R_{v1}+R_{s0})+\frac{U_t}{U_{Opt}}*R_{s1 }$

If

$U_t > U_{opt}$

$i_{sb_t}=(R_{v1}+R_{s0})+R_{s1}+ \frac{U_t- U_{Opt}}{1 -U_{Opt}}*R_{s2}$

If

$Ratio > 0_{ratio}$

, an excess is added to the stable borrow interest rate:$i_{sb_t}+=R_{s3}*\frac{ratio-0_{ratio}}{1-0_{ratio}}$

The overall borrow interest rate

$i_{b_t}$

factors in all variable and stable rate borrows and is calculated by taking the weighted average of the total variable and stable borrowed amounts and their respective interest rates.$i_{b_t}=\frac{TotalVariableBorrowAmount*i_{vb_t}+\sum{B_i*i_{sb_i}}}{TotalDebt}$

Where:

- $i_{vb_t}$is the variable borrow amount,
- $B_i$is the stable borrow amount,
- $i_{sb_i}$is the stable borrow rate,
- the subscript$i$represents each stable borrow taken on the protocol.

The deposit interest rate

$i_{d_t}$

is directly dependent on the overall borrow interest rate $i_{b_t}$

. The borrow interest is divided between the depositors, excluding what is retained by the protocol.$i_{d_t}= U_t*i_{b_t}*(1-RR)$

Where:

- $RR$is the retention rate i.e. the interest kept by the protocol as revenue.

Last modified 1mo ago