Understanding the Interest Rate Model
The Nebeus DeFi Lending Protocol uses a dynamic interest rate model to balance liquidity and optimize the use of capital within its pools. This system adjusts borrowing costs based on how much of the available capital is currently being used (known as the Utilization Rate).
Key Principles of the Model
Low Utilization (U ≤ Uₒₔₚₐ₁):
When less of the available funds are being used, borrowing interest rates increase slowly. This encourages borrowing by keeping rates low when there is plenty of liquidity.
High Utilization (U > Uₒₔₚₐ₁):
When most of the funds are being used, interest rates rise steeply. This motivates borrowers to repay loans and attracts new deposits, helping to ensure enough liquidity is available.
Simplified Interest Rate Parameters
Optimal Utilization (Uₒₔₚₐ₁): The target level of capital usage where the interest rate slope changes.
Base Rate: The starting interest rate when none of the funds are utilized.
Slope 1: The rate at which interest increases before reaching the optimal utilization.
Slope 2: The sharper rate of increase when utilization exceeds the optimal level.
These parameters are carefully set to reflect the volatility and liquidity of each asset, ensuring the protocol remains competitive and stable.
How Supply Rates Work
Borrowers’ interest payments are distributed to liquidity providers (nToken holders) as rewards, with a small portion reserved for the protocol. The supply rate—the return earned by liquidity providers—depends on how much of the pool’s capital is being used and the interest rates being charged.
Here’s a simplified formula for understanding the supply rate:
Supply Rate = Utilization Rate × Borrowing Interest Rate × (1 - Reserve Factor)
Utilization Rate: The percentage of the pool’s funds currently loaned out.
Borrowing Interest Rate: The rate paid by borrowers.
Reserve Factor: A small percentage of interest set aside for the protocol’s reserve.
Stable vs. Variable Interest Rates
Nebeus offers two types of borrowing rates:
Variable Rates:
Change dynamically with pool utilization.
Ideal for borrowers looking for potentially lower rates and are comfortable with market fluctuations.
Stable Rates:
Locked in at the time of borrowing, providing predictability.
Typically higher and may be adjusted periodically to stay aligned with market conditions.
Benefits of the Dynamic Model
By using this flexible interest rate system, Nebeus ensures:
Efficient Capital Utilization: Encourages borrowing when liquidity is high and repayment when it’s low.
Stable Liquidity: Maintains enough funds in the pool to meet demand.
Competitive Returns: Provides fair and attractive yields for liquidity providers.
This adaptive model ensures that Nebeus remains a reliable and sustainable platform for decentralized lending and borrowing.
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