Market Dynamics
When the utilization rate is low, interest rates are lower to incentivize borrowers to borrow more assets. When the utilization rate are higher, interest rates increase to incentivize lenders to supply more liquidity. When the utilization rates passes the kink, the interest rate increases at a much faster rate - this incentivizes lenders to supply more liquidity and borrowers to repay their loans.
Example:
10% Utilization Rate = 3% Interest Rate
50% Utilization Rate = 10% Interest Rate
80% Utilization Rate (kink) = 15% Interest Rate
90% Utilization Rate = 75% Interest Rate <- notice how the interest rate increases at a much faster rate when the utilization rate passes the kink
Last updated