# Borrow Interest Rate

Last updated

Last updated

Regarding the issue of whether to charge loan interest, we have gone through a lot of analysis and evaluation, and also referred to the practices of most decentralized stablecoins in the market. In consideration of the stability and development of the agreement, we made a decision to charge a certain amount of interest. Of course, this interest rate is very low most of the time.

Before understanding the interest rate model, you need to understand the nouns:

MCR = Minimum Collateral Ratio

ICR = Individual Collateral Ratio

TCR = Total Collateral Ratio

CCR = Critical Collateral Ratio

OCR = Optimal Collateral Ratio

Interest Rate Model

We hope that the the total system collateral ratio will remain within a reasonable range, because we have introduced OCR, namely Optimal Collateral Ratio. Under normal circumstances, the borrowing rate will remain at a very low level, but once the system's mortgage rate exceeds the OCR, it will increase sharply.

The interest rate$R_t$follows the model:

$if \hspace{1mm} CCR > TCR: \hspace{1cm} R_t = R_{base}$

$if \hspace{1mm} CCR \leq TCR < OCR: \hspace{1cm} R_t = R_{base} + \frac{TCR - CCR}{OCR - CCR} R_{slope1}$

$if \hspace{1mm} OCR \leq TCR: \hspace{1cm} R_t = R_{base} + R_{slope1} + (\frac{TCR}{OCR}-1)R_{slope2}$

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 is:

$Actual APY = (1+Theoretical APY/secsperyear)^{secsperyear}-1$

Model Parameters

For the attributes of LSDs collateral and based on the above formula, we calculate the following data and set as the parameter:

= 200%*OCR *

$R_{base}$ = 0.5%

$R_{slope1}$ = 2%

$R_{slope2}$ = 10%