# Interest Rate Model

The interest-rate model is critical both for rewarding lenders appropriately and for maintaining healthy market liquidity. Rates adjust dynamically with each asset’s utilization ratio, incentivizing liquidity to flow where it is most needed and keeping pools balanced.

Each market can deploy its own interest-rate contract, independent of the lending pool itself. This modular approach—fully aligned with Affluent’s architecture—offers maximum flexibility and easy customization.

### Parameters

Interest Rate Model is asset-specific parameter. Default model is **Jump Rate Model**, which features two utilization “kinks,” creating three slope segments:

<table><thead><tr><th width="188">Parameter</th><th>Description</th></tr></thead><tbody><tr><td><strong>Base Rate</strong></td><td>Interest rate when utilization is 0 %</td></tr><tr><td><strong>Kink Points</strong></td><td>Utilization thresholds where the slope of the curve changes</td></tr><tr><td><strong>Slopes</strong></td><td>Rate of interest-rate increase within each utilization band</td></tr></tbody></table>

### Interest Rate Model

#### Utilization Ratio

$$
U\_{t}= \frac {Total \ Borrowed {}} {Total \ Supplied\_{}}
$$

#### Borrow Rate

$$
Borrow(U\_t)= R\_{0} + Slope\_{low} \cdot \min\[U\_{t}, U\_{low}] \ + \ Slope\_{medium}\cdot \min\[\ \max\[0,U\_{t} - U\_{low}],U\_{high}-U\_{low}] \ + \ Slope\_{high}\cdot \max\[0, U\_{t}-U\_{high}]
$$

Where:

* $$R\_0$$ : Base Rate
* $$U\_{low}$$ : Lower kink point
* $$U\_{high}$$ : Higher kink point
* $$Slope\_{low}$$ : Slope at Utilization Ratio lower than $$U\_{low}$$
* $$Slope\_{medium}$$ : Slope at Utilization Ratio between $$U\_{low}$$ and $$U\_{high}$$
* $$Slope\_{high}$$ : Slope at Utilization Ratio higher than $$U\_{high}$$

<figure><img src="/files/UxaYioP8VynTcpKvDZI9" alt=""><figcaption></figcaption></figure>

#### Supply Rate

$$
SupplyRate(U\_t) = Borrow(U\_t) \cdot U\_t
$$


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