# Interest rates

Last updated

Last updated

Each silo has its own interest rate contract set at deployment. To date, they've all followed a model using following variables:

*Utilization: *Amount of borrowed funds divided by amount of lent funds

*Base Rate*: Borrow rate when utilization is 0% (i.e. no funds are borrowed)

*Optimal Utilization*: A fixed utilization rate

*Optimal Rate*: Borrow rate when utilization is equal to optimal utilization

*Maximum Rate*: Borrow rate when utilization is 100% (i.e. all funds are borrowed)

If the utilization rate is less than or equal to the optimal utilization, then

`BorrowAPR = Base Rate + Utilization x ((Optimal Rate - Base Rate) / Optimal Utilization)`

If the utilization rate is greater than the optimal utilization, then

`BorrowAPR = Optimal Rate + ((Utilization - Optimal Utilization) x ((Maximum Rate - Optimal Rate) / (1 - Optimal Utilization))) `

Here is a visual representation of this formula (courtesy of Frax Finance):

Fees

10% of interest paid by borrowers is collected as a fee. The remaining 90% is paid to lenders.