Interest Rates

In MultiLend, interest rates are determined by pool utilization.

If there is a surplus of lenders, rates are lowered, and if there is a shortage of lenders, rates are increased. Rates can change once every 12 hours, at 10% of the existing rate in either direction.

MultiLend uses deterministic rules to set interest rates based upon user actions in the pool. These rules are founded on the assumption that aggregate average loan collateralization (pool collateralization) is an accurate indicator of the volatility profile of an asset, because borrowers have a natural aversion to liquidation (which they will be forced into over time if they fail to adequately collateralize their loan).

MultiLend uses pool collateralization to inform the desired utilization ratio (i.e. the equilibrium between utilized and unutilized deposits) for the pool: the target utilization. Subsequently, we can look at the meaningful actual utilization, which is a short term EMA of the ratio of debt to total lender deposits available to the average loan in the pool.

Interest rates adjust based on these values to move the pool towards equilibrium.

When meaningful actual utilization is low relative to target utilization, there is a surplus of lenders, and rates can be lowered. When meaningful actual utilization is high relative to target utilization, there is a shortage of lenders and rates can be increased.

Borrower’s Interest Rates

Borrower interest rates change dynamically based on the pool's “meaningful actual utilization,” MAU, and “target utilization,” TU, in response to market forces . Meaningful actual utilization is debt relative to all deposit above DWATP (the average threshold price of all loans in the pool, with each loan weighted by its debt).