Borrow APR and Lending Utilization

DefiTuna utilizes a curve-based interest rate model to dynamically adjust Annual Percentage Rates (APR) in response to changes in utilization rates. This approach ensures efficient and balanced operation under varying market conditions.

Curve Mechanism

Our interest rate model targets a utilization rate $U$ of 90%. Utilization curve function scales the target APR depending upon the relationship between utilization and APR and is governed by the following formula (r(U) = borrow APR):

$r(U)=r_{90\%}⋅curve(U)$

$$\text{curve}(U) =\begin{cases} 1+\frac{(U - U_t) \cdot (k_d - 1)}{1 - U_t}, & \text{if } U > U_t \\ 1 - \frac{(U_t - U) \cdot (k_d - 1)}{k_d \cdot U_t}, & \text{if } U \leq U_t \end{cases}$$

Where:

• $k_d$ = $4.0$

• $U_t = 0.9$ (90%)

Behavior of the Model

• At $U$ = $90\%$, $r(U)$ = $r_{90\%}$.

• At $U$ = $100\%$, $r(U)=4·r_{90\%}$.

From 90% to 100% utilization, the supply (and thus borrow) APY increases exponentially. This mechanism is designed to incentivize borrowers to repay their loans and encourage lenders to deposit more funds, preventing the utilization rate from ever reaching 100%. This ensures that lenders can withdraw their funds at any time and borrowers can still open LP positions when needed.

Currently our target Lending APY is 36% at optimal utilization percentage point (90%).

For instance, USDC Lending Utilization at 90% would put Lending APY at 36%.

Live Borrow APR

Our Borrow APR is shown on any actively open position. Scroll down to the "Opened Positions" section and have a look at "Debt"

The value shown in brackets ( ) under the “Debt” section represents the borrowing fees you will need to pay when your position is closed. To calculate your net yield (i.e. your actual profit), subtract the borrowing fees from your yield: Net Yield = Yield – Borrowing Fees.

In this case its:

Which gives us a total of . We can deduce from this example that we farmed with leverage at a very profitable rate.