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
for stable and
for variable. The variable borrow interest rate
and stable borrow interest rates
are calculated based on the optimal utilisation ratio
and optimal stable to total debt ratio
set by the protocol.
, an excess is added to the stable borrow interest rate:
The overall borrow interest rate
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.
- is the variable borrow amount,
- is the stable borrow amount,
- is the stable borrow rate,
- the subscriptrepresents each stable borrow taken on the protocol.
The deposit interest rate
is directly dependent on the overall borrow interest rate
. The borrow interest is divided between the depositors, excluding what is retained by the protocol.
- is the retention rate i.e. the interest kept by the protocol as revenue.