Paddle Finance
  • Introduction
  • V1 Liquidity Solution
    • Basket Collateral
    • Collateral Loan
      • Peer-To-Peer Lending
      • Peer-To-Crowd Lending
    • OTC Exchange
    • Parameters
  • V2 Liquidity Solution
  • Peer-To-Pool Lending
    • Market List
    • Interest Bearing Token (iToken)
  • Risk Framework
    • Asset Risk
      • From Risks to Risk Parameters
      • Risk Parameters
    • Liquidity Risk
      • Utilization
      • Interest Rate Model
  • Liquidation
  • Price Oracle
  • PADD Liquidity Incentives
  • BGT Emission + Beratrax Integration (Thoon)
  • User Guide
    • Borrower
    • Lender
  • Paddle Battle
    • Mechanics
    • Revenue
    • Referral System
  • Governance
    • PADDenomics
    • About PADD
    • PADD Reward
    • Fee Collection & Distribution
  • User Guide
    • Borrower
    • Lender
  • OTC Trade
  • API Documentation
    • API Guide
    • Loan Endpoints
    • OTC Endpoints
    • REST Endpoints
    • Tutorials
      • Source
      • Parameter Explanation
      • Loan - Create order
      • Loan - Cancel Order
      • Loan - Lend
      • Loan - Repayment
      • Loan - Liquidate
      • OTC - Create OTC Order
      • OTC - Cancel Order
      • OTC - Take Order
  • Links
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On this page
  • Normal Model
  • Jump Rate Model
  • Latest Interest Rate Table
  1. Risk Framework
  2. Liquidity Risk

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

Currently all the markets are designed as Jump Rate Model.

Latest Interest Rate Table

Chain
Market
Interest Rate Model
Base
Multiplier
Kink
Jump Multiplier
Reserve Factor

Berachain

Bullas/WBERA

Jump Rate Model

5%

25%

70%

250%

12.5%

Berachain

Steady Teddys/WBERA

Jump Rate Model

5%

25%

70%

250%

12.5%

Berachain

Yeetard/YEET

Jump Rate Model

5%

25%

70%

250%

12.5%

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Last updated 7 days ago