Borrow Rates

Solera’s interest rate model is designed to manage liquidity risk, especially under high utilization. The model consists of two main components:

• Below the optimal utilization rate (U_optimal): The borrow rate increases gradually.

• Above U_optimal: The rate rises sharply to discourage excessive utilization.

The borrow rates rise gently as utilization increases but spike significantly as utilization nears full capacity, ensuring effective liquidity management. Interest rate curves determine supply and borrow rates based on an asset’s utilization, maintaining market balance while ensuring lenders can access their liquidity when needed.

Model Parameters: Key parameters for the variable interest rate model include:

• Optimal Utilization Rate (U_optimal)

• Base Variable Borrow Rate

• Variable Rate Slope 1 (before U_optimal)

• Variable Rate Slope 2 (after U_optimal)

• Interest Rate Slope Change Past U_optimal

If the optimal utilization rate were set to 100%, the rates would follow a linear model.

Solera distinguishes between assets used primarily as collateral, which require high liquidity for liquidation, and those with sufficient liquidity that contribute to a stable utilization rate. Market conditions also impact borrowing costs; Solera ensures its rates remain competitive to avoid arbitrage opportunities.

In scenarios such as liquidity mining, where borrowing costs are influenced by external incentives, Solera adjusts its interest rates to balance borrowing costs with liquidity rewards. For the most current deposit APY and borrowing costs, users should consult the Solera App interface for each asset.