Curvance
  • Protocol Overview
    • Click Less, Earn More
    • Protocol Architecture
    • Asset Types
    • Liquidity Markets
      • Borrowing
      • Liquidations
      • Interest Rates
      • Oracles
      • Collateral Caps
      • Bad Debt Socialization
    • Application Specific Sequencing
    • New Age Liquidity Mining
      • Protocols
    • How Are New Assets Integrated
    • Plugin System
    • Universal Account Balance
    • Token Approval Management
    • Lending Risks
  • Security
    • Security and Audits
  • Miscellaneous
    • RPCs and Testnet Stability
    • Glossary
    • TL;DR
      • Customer Types and Benefits
    • Brand Assets
    • Weblinks
    • Disclaimer
    • Frequently Asked Questions
  • Developer Docs
    • Overview
    • Quick Start Guides
      • Atlas Fastlane Auctions (coming soon)
      • Plugin Integration
        • List of Delegable Actions
      • Loans & Collateral
        • Lend Assets
        • Deposit into pTokens
        • Withdraw Loans
        • Withdraw pTokens
      • Borrowing & Repayment
        • Borrow
        • Repaying Debt
      • Leverage
        • Leveraging
        • Deleveraging
    • Lending Protocol
      • Market Manager
      • Position Tokens (pToken)
      • Earn Tokens (eTokens)
      • Dynamic Interest Rate Model
      • Universal Balance
    • Position Management
      • Leverage
      • Deleverage / Fold
    • Dynamic Liquidation Engine (DLE)
      • Orderflow Auction System
      • Bad Debt Socialization
    • Plugin & Delegation System
      • Transfer Lock Mechanism
      • Delegable Actions
    • Cross-Chain Functionality
      • Messaging Hub
      • Fee Manager
      • Reward Manager
    • Auxiliary Functionality
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  • Dynamic Interest Rates on Curvance
  • Interest Rate Adjustments
  • Example Scenario:
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  1. Protocol Overview
  2. Liquidity Markets

Interest Rates

Compensating lenders for their liquidity inside Curvance

Dynamic Interest Rates on Curvance

Interest rates within the platform are dynamic, adjusting in real-time to meet market demand within each lending pool. Inspired by models like Fraxlend, Rari, and Kashi, Curvance’s rates are determined by factors including pool utilization, usage multiplier, and time decay, ensuring stability and flexibility as conditions change.

Interest Rate Adjustments

  • Pool Utilization: This metric reflects the proportion of total funds in a lending pool actively borrowed by users. A higher pool utilization rate indicates that a larger portion of the pool’s funds are being borrowed, while a lower rate shows more lending capacity.

  • Interest Rate Dynamics: As pool utilization increases and nears maximum capacity, interest rates progressively rise, significantly beyond a set “vertex point.” This vertex point serves as a threshold where rates begin to accelerate, responding dynamically to increased demand and incentivizing liquidity supply.

  • Time Decay: Interest rates adjust with a gradual decay over regular intervals (currently set to every 4 hours). If utilization drops below the target rate, the vertex multiplier lowers, leading to a decrease in rates to maintain stability.

Example Scenario:

Initial State: A lending pool contains 1,000,000 USDC, of which 800,000 USDC is borrowed, resulting in an 80% utilization rate with an interest rate of 2%.

  • Surge in Utilization: If a large borrower enters and takes an additional 200,000 USDC, pushing utilization to 100%, the interest rate rises significantly due to exceeding the 85% vertex point. In this scenario, rates increase to 8%, which then double every 4 hours until utilization decreases.

This dynamic adjustment encourages borrowers to consider repayment while incentivizing suppliers to add more USDC to the pool, helping balance demand and maintain liquidity. The system’s responsiveness promotes an equilibrium within the lending ecosystem, supporting stability and addressing the evolving needs of the protocol users.

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Last updated 6 months ago