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

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 1yr ago