Lending

How Lending Works

Lenders can deposit assets such as USDC into lending pools on Vaultka V2 to earn interest. The interest rates are determined by the utilization rate (UR), which is the ratio of borrowed funds to the total deposits in the pool.

Interest Rate Model

The interest rate model is designed to adjust according to demand and supply within the lending pools. Rates are based on the utilization rate (UR), with higher utilization rates leading to higher interest rates.

Base Rate Formula

• When 0% ≤ UR < 80%, the base rate increases linearly from 0% to 10% APR, calculated as:

  • Base rate = (UR / 80%) × 10%

• When UR ≥ 80%, the rate increases more steeply, reaching up to 300% APR at full utilization, calculated as:

  • Base rate = 10% + ((UR - 80%) / 20%) × (300% - 10%)

Base rates will be adjusted dynamically to maintain an optimal balance between lenders and borrowers.

Fees

• Protocol Fee: 1% fixed fee plus 5% of the base rate.

• Borrower APR: The borrower pays a rate equal to the base rate plus an additional 5% of the base rate and a fixed 1% protocol fee.

Borrower APR = Base Rate + (Base Rate × 5%) + 1%

• Lender APR: Lenders earn a rate equal to the base rate multiplied by the utilization rate.

Lender APR = Base Rate × UR

Example

Let’s assume the following scenario:

• Base Rate: 10% APR

• Utilization Rate (UR): 80% (or 0.80)

Borrower APR Calculation

1. Base Rate: 10%

2. Additional 5% of the Base Rate Calculation: 10% × 5% = 0.5%

3. Fixed Protocol Fee: 1%

Plugging these values into the formula:

Borrower APR = 10% + 0.5% + 1% = 11.5%

Lender APR Calculation

Lender APR = Base Rate × UR = 10% × 0.80 = 8%

Summary

• Borrower APR: 11.5%

(The borrower pays a 10% base rate, plus a 0.5% additional fee, and a 1% protocol fee.)

• Lender APR: 8%

(Lenders earn a 10% base rate multiplied by an 80% utilization rate.)

This example demonstrates that with a 10% base rate and an 80% utilization rate, borrowers would face an 11.5% APR while lenders would earn an 8% APR. As the utilization rate increases, lenders benefit from higher returns; however, the borrowing costs also increase accordingly.