Utilization and Interest Rates

Interest Rates on Backpack are determined by a Utilization Rate model. Each borrow lend market has its own Utilization Rate curve, which can be found on their respective Lend page. A market's Utilization Rate shows how much of its available assets are borrowed. As more assets get borrowed, interest rates rise.

More specifically, Utilization Rate = Total Borrowed / Total Lent

You can get a comprehensive view of how interest rates are generated on Backpack. At any point in time, you can monitor the following:

1. Total lending pool supply

2. Total borrowed amount

3. Current Utilization Rate

4. Projected interest rates at various Utilization Rate levels

5. And more

Interest is charged every hour. The Borrow Rate is purely determined by the Utilization Rate curve. The Lend Rate is equal to Borrow Rate * Utilization.

The utilization rate curve is designed to reduce the risk of reaching 100% utilization, which would block redemptions from the lending pool. The system defines an optimal utilization threshold where interest rates begin to rise exponentially. This makes borrowing increasingly expensive, encouraging repayments, while also making lending more attractive due to higher yields. These market forces work together to reduce the utilization rate.

As an additional safeguard, the system includes a throttle threshold. When utilization reaches this level, all redemptions and new borrows pause. This gives new lenders time to enter the market and borrowers time to repay their debt. The pause also creates a buffer for redeeming collateral from accounts undergoing liquidation.