# Interest Rate Model
Paddle's interest rate strategy is calibrated to manage liquidity risk and optimize utilization. The borrow interest rates come from the Utilization Rate U.
U is an indicator of the availability of capital in the pool. The interest rate model is used to manage liquidity risk through allocating user incentivizes to support liquidity:
* When capital is sufficient: low interest rates to encourage loans.
* When capital is scarce: high interest rates to encourage repayments for loans and additional supplies.
## **Normal Model**
The supplying rate's calculation depends on something called an **interest rate model** — the algorithmic model to determine a money market's demand and supply rates.
This interest rate model takes in two parameters:
* Base rate per year, the minimum borrowing rate
* Multiplier per year, the rate of increase in interest rate with respect to utilization
**Borrow Rate**
\= Base + Multiplier x Utilization Rate
**Supply Rate**
\= Borrow Rate x (1-Reserve Factor) x Utilization Rate
## Jump Rate Model
Liquidity risk materializes when utilization is high, its becomes more problematic as U gets closer to 100%. To tailor the model to this constraint, some markets follow what is known as the "Jump Rate model”. This model has the standard parameters:
* Base rate per year, the minimum demand rate
* Multiplier per year, the rate of increase in interest rate with respect to utilization
but it also introduces two new parameters:
* Kink, the point in the model in which the model follows the jump multiplier
* Jump Multiplier per year, the rate of increase in interest rate with respect to utilization after the "Kink"
**Borrow Rate**
\= Base + Multiplier x Min(Utilization Rate, Kink) + Jump Multiplier x Max(Utilization Rate - Kink, 0)
**Supply Rate**
\= Borrow Rate x (1-Reserve Factor) x Utilization Rate
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Currently all the markets are designed as Jump Rate Model.
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## Latest Interest Rate Table
