> ## 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.

# Interest Rate Parameters

> Detailed breakdown of the parameters that control interest rate calculations in Edel

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.

## Core Parameters

### 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

### 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

### 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)

### 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

## Asset-Specific Examples

<Tabs>
  <Tab title="USDC (Stable)">
    **Base Rate**: 1%
    **Slope 1**: 4%
    **Optimal Utilization**: 80%
    **Slope 2**: 75%

    *Conservative parameters for stable, liquid asset*
  </Tab>

  <Tab title="WETH (Volatile)">
    **Base Rate**: 0%
    **Slope 1**: 3.8%
    **Optimal Utilization**: 80%
    **Slope 2**: 80%

    *Moderate parameters for established volatile asset*
  </Tab>

  <Tab title="Stock Tokens (Highly Volatile)">
    **Base Rate**: 2%
    **Slope 1**: 8%
    **Optimal Utilization**: 75%
    **Slope 2**: 200%

    *Aggressive parameters for high-risk assets*
  </Tab>
</Tabs>

## Rate Calculation Formula

The complete interest rate formula depends on current utilization:

### When Utilization ≤ Optimal Utilization:

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

### When Utilization > Optimal Utilization:

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

### Supply Rate Calculation:

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

## Reserve Factor

<Info>
  The reserve factor determines what percentage of interest payments go to the protocol treasury instead of suppliers.
</Info>

**Typical Values:**

* Stablecoins: 10-15%
* Major cryptoassets: 15-25%
* Stock tokens: 20-30%

## Parameter Updates

### 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

### When Parameters Change

<CardGroup cols={2}>
  <Card title="Market Stress" icon="triangle-exclamation">
    During high volatility, parameters may increase to protect the protocol
  </Card>

  <Card title="Asset Maturity" icon="arrow-trend-up">
    As assets become more established, parameters may become more favorable
  </Card>
</CardGroup>

## 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

<Tip>
  Use the protocol's rate calculator to understand how utilization changes will affect your borrowing costs or supply yields before making transactions.
</Tip>

## Risk Considerations

### For Suppliers

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

### For Borrowers

* Steep Slope 2 parameters can cause rapid cost increases
* Monitor utilization trends in your borrowed assets

<Check>
  Understanding these parameters helps you make informed decisions about when to borrow, supply, or adjust your positions based on expected rate changes.
</Check>