Interest Rates
Not arbitrarily defined by a central entity, but by pure mathematics.
Last updated
Not arbitrarily defined by a central entity, but by pure mathematics.
Last updated
Finny has three important values used to calculate accurate interest rates - the utilization rate, supply rate and borrow rate.
The utilization rate of a market is the ratio between total borrowed assets and total lent assets - think of it as the percentage of used assets in a market. It is the core of the interest rate model.
The utilization rate of a market can be formally defined as
. Reserves being, the total amount that Finny currently has as profit (more on this later).
The supply rate of a market is the interest of borrowers paid yearly. That is, the delta borrowers have to include when repaying an open position.
It can be formally defined as:
refers to the multiplier of a market - which is the rate of increase in interest rate in regards to the utilization.
being the utilization rate of market .
refers to the base rate of a market - the ever possible minimum borrowing rate.
So for example, there are 1000 BTC supplied, and 100 BTC borrowed, which gives us a 10% utilization rate, the multiplier for BTC is set at 20% and the base rate at 5%. The borrow rate for BTC would be 7%, seen as follows:
Let's go through a scenario using the same market as in the borrow rate (BTC) - it has a 10% utilization rate, the borrow rate is 7% and the reserve factor is set to 15%. The supply rate would be 0.59%, calculated as follows:
Borrow interest is accrued each time there is a successful call of any of the following methods:
Borrow()
Mint()
Repay()
Redeem()
These methods all alter the ratio of assets in the protocol.
As such, the rates are ever-changing, and the really attractive supply rate that you are obtaining today can fluctuate heavily depending on large movements between the borrowed and supplied assets.
The supply rate is the yield (or APY) that is given to suppliers. The supply rate of market is defined as follows:
is the borrow rate of the market.
is the utilization rate of the market.
being the reserve factor of the market - the percentage of the delta between and that Finny stores as profit.