Interest Rate Model
Last updated
Last updated
Lendle uses Aave's core contracts for its lending markets. Aave’s interest rate strategy is calibrated to manage liquidity risk and optimise utilisation. The borrow interest rates come from the Utilisation Rate .
is an indicator of the availability of capital in the pool. The interest rate model is used to manage liquidity risk through user incentives to support liquidity:
When capital is available: low interest rates to encourage loans.
When capital is scarce: high interest rates to encourage repayments of loans and additional deposits.
To retrieve the interest rate strategy contract on-chain, see this section of the developer docs.
Liquidity risk materialises when utilisation is high, it becomes more problematic as gets closer to 100%. To tailor the model to this constraint, the interest rate curve is split in two parts around an optimal utilisation rate . Before the slope is small, after it starts rising sharply.
The interest ratefollows the model:
In the borrow rate technical implementation, the calculateCompoundedInterest method relies on an approximation that mostly affects high interest rates. The resulting actual borrow rate can be:
Both the variable and stable interest models, are derived from the formula above which is derived from Aave Whitepaper with different parameters for each asset.
When the borrow interest rates increase slowly with utilisation
When the borrow interest rates increase sharply with utilisation to above 50% APY if the liquidity is fully utilised.
Variable loans see their rate constantly evolving with utilisation. This means they are not ideal for financial planning.
For rebalancing the stable rate up, these two conditions need to be met:
TBA
TBA
TBA
Hence Lendle offers stable loans, that maintain their interest rate at issuance until the specific rebalancing conditions are met. For rebalancing the stable rate down, the loan stable rateneeds to be greater than the current stable rate plus a delta equal to 20%: .
Utilisation Rate:
Overall Borrow Rate, the weighted average of all the borrow rates: