Provident Capital
  • Protocol Information
    • Deposit
      • How to Deposit
      • hTokens
      • Withdraw assets
    • Borrow
      • How to Borrow
      • Health Factor
      • Loan Repayment
      • Liquidations
      • Flash Loans
      • Interest Rate Model
    • Phase 1 - Boosted Emission Phase
    • Phase 2 - Token Generation Event
      • Provident Liquidity (pLP)
      • pLP Liquidity Options
      • Zapping pLP
      • Staking and Revenue Sharing
      • Managing pLP
    • Tokenomics
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  • Interest Rates (APY) & Utilization
  • Interest Rate Model
  1. Protocol Information
  2. Borrow

Interest Rate Model

PreviousFlash LoansNextPhase 1 - Boosted Emission Phase

Last updated 1 year ago

Interest Rates (APY) & Utilization

Provident's interest rate algorithm is calibrated to manage liquidity risk and optimize utilization. The borrow interest rates are derived from the utilization rate U.

U is an indicator of the availability of capital within the pool. The interest rate model manages liquidity risk in the protocol through user incentives to support liquidity:

  • When capital is available: low-interest rates to encourage borrowing

  • When capital is scarce: high-interest rates encourage debt repayments and additional supply of capital

Interest Rate Model

Liquidity risk materializes when utilization is high, and this becomes more problematic as U gets closer to 100%. To tailor the model to this constraint, the interest rate curve is split into two parts around an optimal utilization rate UoptimalU_{optimal}Uoptimal​. Before UoptimalU_{optimal}Uoptimal​the slope is small, after it begins rising sharply.

Since these aspects of the Radiant smart contracts are influenced by Aave, please refer to their for calculations of APY:

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