All interest rates in Pando Rings are determined as a function of utilization rate. With the changes in the utilization rate, interest rates continuously fluctuate.
The Utilization Rate
The utilization rate for a money market is defined as:
Utilization_rate = market.total_borrows/(market.total_cash + market.borrows - market.reserves)
- market.total_borrows refers to the amount of total borrow of a certain money market
- market.total_cash refers to the amount left in the system of a certain money market
- market.reserves refers to the amount that is kept as profit of a certain money market
The formula can be interpreted roughly as the percentage of money borrowed out of the total money supplied.
A high utilization rate signifies that demand is high and a lot of borrowing is taking place, so interest rates go up as an incentive to get more people to inject cash into the system. A low utilization rate signifies that demand for borrowing is low, so interest rates go down to encourage more people to borrow cash from the system.
Currently, the borrow rate model of all money markets on Rings follow the Jump Rate model.
In this model, there is a key parameter defined as Kink, which is a value of the utilization rate and creates a sharp turning point where the interest rates spike.
The borrow rate of the jump rate model is defined as:
When the utilization rate ≤ Kink:
Borrow_interest_rate = multiplier * market.utilization_rate + base_rate
When the utilization rate > Kink:
Borrow_interest_rate = multiplier * Kink + jump_multiplier * (market.utilization_rate - Kink) + base_rate
- base_rate per year is the minimum borrowing rate
- multiplier per year is the rate of increase in interest rate with respect to utilization
- Kink is the point in the model in which the model follows the jump multiplier
- jump_multiplier per year is the rate of increase in interest rate with respect to utilization after the Kink
The supply rate is calculated as follows:
Supply_interest_rate = Borrow_interest_rate * market.utilization_rate * (1 - market.reserve_factor)
- market.utilization_rate is the utilization rate of a certain market
- market.reserve_factor controls what percentage of the interest borrowers pay for a certain market is kept within the system to protect lenders against borrow default and liquidation malfunction
- Borrow_interest_rate is the interest rate that borrowers pay for a certian market
Parameters of all Pando Rings' money markets
(last updated on Oct 18, 2021)
Currently, all money markets has a Kink of 80%, meaning, when utilization ratio reaches 80%, both the supply and borrow interest rates will have a sudden jump.
For pUSD and USDT:
For BTC, ETH, LTC, EOS. DOT, XIN, MOB, BOX and DOGE:
It is important to understand the interest rate model of your selected money markets and monitor the changes in the interest rates for the profitability and safety of your assets.