> ## Documentation Index > Fetch the complete documentation index at: https://docs.edel.finance/llms.txt > Use this file to discover all available pages before exploring further. # Utilization Ratio & Interest Rates Utilization ratio and interest rate model visualization ## 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. ## How Interest Rates Are Calculated Edel Finance uses a **two-slope interest rate model** that responds to market conditions: ### 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 **Borrow Rate**: Increases sharply\ **Supply Rate**: Increases significantly\ **Market Condition**: Limited liquidity, higher risk ## 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. ## What Affects Your Earnings ### 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%) ### As a Borrower Your interest costs increase with: * Higher utilization in the market * Time (interest accrues continuously) * Market volatility (affects demand) ## Market Dynamics **Benefits**: Lower borrow costs, high liquidity\ **Drawbacks**: Lower supply yields **Benefits**: Higher supply yields\ **Drawbacks**: Higher borrow costs, withdrawal risks ## 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. ## 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.