Interest rates in Edel Finance are controlled by specific parameters for each asset market. Understanding these parameters helps you predict how rates will change with market conditions.

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Core Parameters

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Base Rate (R₀)

The minimum interest rate when utilization is 0%.
  • Purpose: Ensures lenders always earn a baseline return
  • Typical Range: 0-2% APY
  • Impact: Sets the floor for borrowing costs

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Slope 1 (R₁)

Rate increase per unit of utilization from 0% to optimal utilization.
  • Purpose: Gradual rate increase to encourage borrowing
  • Formula: Rate = Base Rate + (Utilization × Slope 1)
  • Range: Usually covers 0% to 80% utilization

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Optimal Utilization (U_optimal)

The target utilization ratio where the interest rate model changes slope.
  • Typical Value: 80% for most assets
  • Purpose: Balances liquidity availability with capital efficiency
  • Below this point: Gradual rate increases (Slope 1)
  • Above this point: Sharp rate increases (Slope 2)

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Slope 2 (R₂)

Steep rate increase beyond optimal utilization.
  • Purpose: Protects protocol liquidity and discourages over-borrowing
  • Formula: Rate = Base Rate + (U_optimal × Slope 1) + ((Utilization - U_optimal) × Slope 2)
  • Impact: Creates strong incentive for repayment when liquidity is low

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Asset-Specific Examples

Base Rate: 1% Slope 1: 4% Optimal Utilization: 80% Slope 2: 75%Conservative parameters for stable, liquid asset

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Rate Calculation Formula

The complete interest rate formula depends on current utilization:

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When Utilization ≤ Optimal Utilization:

Borrow Rate = Base Rate + (Utilization × Slope 1)

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When Utilization > Optimal Utilization:

Borrow Rate = Base Rate + (Optimal Utilization × Slope 1) +
              ((Utilization - Optimal Utilization) × Slope 2)

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Supply Rate Calculation:

Supply Rate = Borrow Rate × Utilization × (1 - Reserve Factor)

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Reserve Factor

The reserve factor determines what percentage of interest payments go to the protocol treasury instead of suppliers.
Typical Values:
  • Stablecoins: 10-15%
  • Major cryptoassets: 15-25%
  • Stock tokens: 20-30%

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Parameter Updates

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Governance Process

Interest rate parameters can be updated through:
  1. Community Proposal: Parameter changes proposed by community
  2. Risk Assessment: Analysis of market conditions and asset risks
  3. Voting Period: Token holders vote on proposed changes
  4. Implementation: Approved changes take effect after timelock

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When Parameters Change

Market Stress

During high volatility, parameters may increase to protect the protocol

Asset Maturity

As assets become more established, parameters may become more favorable

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Real-Time Monitoring

Current parameters for all assets are available:
  • Protocol Dashboard: Live parameter values
  • Rate Calculator: Simulate rates at different utilization levels
  • Historical Data: Track parameter changes over time
Use the protocol’s rate calculator to understand how utilization changes will affect your borrowing costs or supply yields before making transactions.

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Risk Considerations

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For Suppliers

  • Higher Slope 2 values protect your liquidity but may reduce yields at high utilization
  • Reserve factors directly impact your earnings

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For Borrowers

  • Steep Slope 2 parameters can cause rapid cost increases
  • Monitor utilization trends in your borrowed assets
Understanding these parameters helps you make informed decisions about when to borrow, supply, or adjust your positions based on expected rate changes.