Interest Rate

The supply and borrow interest rates are a function of the utilization rate of the base asset. Each model includes a utilization rate “kink” - above this point the interest rate increases more rapidly. This so-called jump rate model effectively balances incentives for liquidity providers and borrowers while safeguarding the health and functionality of the protocol.

The Jump Rate Model uses the following formulas to calculate the interest for any specific asset (a):

$$Interest_{Borrow} =Multiplier∗min(U_a ,Kink) +Multiplier_{Jump}∗max(0,U _a−Kink) + Rate_{Base}$$

$$Interest_{Supply} = Interest_{Borrow} ∗U_a ∗ (1−RF_a) ​$$

In MachFi, interest rates are dynamic and continuously adjust based on the utilization rate of the liquidity pool, ensuring that supply and demand are balanced in real time.

Interest rates may also shift through governance decisions. For example, changes to fees could be proposed and implemented by MachFi’s decentralized governance framework. This process is transparent, ensuring all stakeholders are informed and engaged.

This stands in stark contrast to the opaque and speculative nature of traditional systems, such as the Federal Reserve’s quarterly Federal Open Market Committee (FOMC) decisions. In comparison, MachFi’s decentralized and transparent approach prioritizes the interests of its participants while maintaining a robust and adaptable ecosystem.