Parallel Finance

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Interest Rate Model

The interest rate in **Parallel finance** is dynamically determined by the **supply** and **demand**. Therefore, the borrow and supply interests could vary in different blocks.

When a supplier deposits an asset to the money market, a certain amount of pTokens will be issued based on the initial exchange rate. The supplier earns interest through the appreciation of pToken's exchange rate.

$ExchangeRate = \frac{(TotalCash + TotalBorrows - TotalReserve)}{ TotalSupply}$

The utilization rate represents the percentage of borrows in the total money market.

$UtilizationRatio = \frac{TotalBorrows} {TotalCash + TotalBorrows}$

Parallel finance converts a certain portion of borrow interests into reserves. These reserves may be used for incentives, liquidation protection, emergencies, etc.

$TotalReserve_{t+1} = InterestAccumulated \cdot ReserveFactor + TotalReserve_{t}$

Parallel Finance implements the jump interest model. When the utilization rate exceeds the kinks, the jump rate will be applied to the excess portion.

If **Utilization <= Jump_Utilization**,

$Borrow Interest Rate = Base Rate + \frac{JumpRate-BaseRate}{JumpUtilization} \cdot Utilization$

If **Utilization > Jump_Utilization**,

$Borrow Interest Rate = JumpRate+ \frac{FullRate-JumpRate}{1-JumpUtilization} \cdot (Utilization - JumpUtilization)$

5. Interest Rate Model Parameters

Asset

Base_Rate

Full_Rate

Jump_Utilization

Jump_Rate

KSM

2%

30%

80%

14.01%

xKSM

1%

26.21%

80%

10%

USDT

2%

34.21%

85%

4.67%

Last modified 6mo ago