Interest Rate Strategy

This section describes the lending pool's interest rate parameters.

The interest rate strategy of Trava pool is designed to control liquidity risk while also maximizing utilization. The Utilisation Rate determines the borrow interest rates.

When this ratio approaches 100%, there will be a scarcity of tokens in the Pool. The borrower will be unable to borrow at this time, and the lender will be unable to withdraw funds from the Pool. To avoid this, interest rate and risk parameters must be calculated in precise detail for each token.

Interest Rate Model

Interest Rate Model tends to be a cost-effective way for the Pool to run itself. The parameters of the pool will aid in the adjustment of borrow and deposit rates to a balanced and reasonable point.

In practice, numerous models are used: linear rate, non-linear rate, and kinked rate. The kinked rate model is used in the Trava protocol. As with the non-linear model, such models have the virtue of significantly shifting the incentives for borrowers and lenders beyond some usage level. In contrast to non-linear models without a kink, they also introduce a point of abrupt change in the interest rate, beyond which interest rates begin to sharply rise.

Interest rate parameters in Trava protocol

Borrow rate

Deposit rate

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