Utilization ratio and interest rate model visualization

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Understanding Utilization Ratio

The utilization ratio shows how much of a market’s liquidity is currently being borrowed. It’s a simple but powerful metric that drives all interest rates in Edel Finance. Utilization Ratio = Total Borrowed ÷ Total Supplied For example, if a USDC market has:
  • $10 million supplied
  • $7 million borrowed
  • Utilization ratio = 70%
Higher utilization means more demand for borrowing, which automatically increases interest rates for both suppliers and borrowers.

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How Interest Rates Are Calculated

Edel Finance uses a two-slope interest rate model that responds to market conditions:

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The Two-Slope System

Slope 1: Low to Optimal Utilization
  • Gradual rate increases as utilization rises
  • Encourages steady borrowing activity
  • Typically covers 0% to 80% utilization
Slope 2: Optimal to Maximum Utilization
  • Steep rate increases to protect liquidity
  • Discourages excessive borrowing
  • Covers 80% to 100% utilization
Borrow Rate: Increases gradually
Supply Rate: Modest increases
Market Condition: Healthy liquidity available

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Real-World Example

Let’s see how rates change in a USDC market: At 50% Utilization:
  • Borrow Rate: 3% APY
  • Supply Rate: 1.5% APY
  • Plenty of liquidity available
At 85% Utilization:
  • Borrow Rate: 8% APY
  • Supply Rate: 6.8% APY
  • Limited liquidity, higher rates
Very high utilization (above 95%) can make withdrawals difficult since most liquidity is borrowed out.

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What Affects Your Earnings

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As a Supplier

Your earnings come from two sources: Interest Payments: You earn a share of the interest paid by borrowers
  • Formula: Average Borrow Rate × Utilization Ratio × Your Share
  • Higher utilization = higher earnings
Flash Loan Fees: You receive a portion of flash loan fees (typically 0.05-0.09%)

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As a Borrower

Your interest costs increase with:
  • Higher utilization in the market
  • Time (interest accrues continuously)
  • Market volatility (affects demand)

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Market Dynamics

Low Utilization Markets

Benefits: Lower borrow costs, high liquidity
Drawbacks: Lower supply yields

High Utilization Markets

Benefits: Higher supply yields
Drawbacks: Higher borrow costs, withdrawal risks

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Optimal Usage Ratio

Each market has an optimal usage ratio (typically around 80%) where:
  • Borrowing costs remain reasonable
  • Suppliers earn attractive yields
  • Sufficient liquidity remains available
  • Risk is balanced
Beyond this point, rates increase sharply to protect the protocol and incentivize more supplies.

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Interest Rate Parameters

Interest Rate Parameters

Explore the detailed parameters that control interest rate calculations, including base rates, slopes, and asset-specific configurations.
Interest rates update automatically with every transaction, ensuring fair market-driven pricing at all times.
Use the Markets section to compare utilization ratios and interest rates across different assets before making decisions.