Interest
Last updated
Last updated
The Interest Rate tells you how much depositors receive per year for lending out assets. For Borrowers, it tells them how much they pay per year for borrowing an asset.
As a lender (), you benefit from high interest rates. After all, that means more money for you. Borrowers () on the other hand, they benefit from low interest rates. Lower costs = more money for them. An efficient system is one that balances this and finds an interest rate that suits both sides.
The foundation of this balance can be found in the pool utilisation.
In essence, when the utilisation is low, it means that there are is a high supply of capital. In this case, there is also high availability of capital, meaning we can safely incentivize more borrowing. As a result, the interest rate is low to make borrowing attractive.
The reverse may also be true, where utilisation is high. In this case, there is a high demand for capital, and thus lower availability for Diamond Hands to withdraw. This scenario would want borrowers to repay or new deposits to come in so that capital becomes available. As a result, the interest rate will be high.
The Interest Rate needs to be attractive enough for both depositors and borrowers to come in. For depositors, this means being high enough to warrant the opportunity cost. For borrowers, it needs to be low enough to be worth the risk of investing.
The Interest Rate on DegenPrime is designed to find a balance between these two scenarios using these .