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Interest Rates

Silo v3 uses an innovative Interest Rate Model designed to maintain equilibrium between lenders and borrowers under changing market conditions.

  • Lenders earn market-driven yield
  • Borrowers pay utilization-based, fair rates

Unlike static models, Silo’s interest rates adapt over time to reflect real liquidity conditions in each isolated market.

Utilization-Based Pricing​

Interest rates are determined by market utilization:

Utilization=Total BorrowedTotal SuppliedUtilization = \frac{Total\ Borrowed}{Total\ Supplied}

As utilization increases:

  • Borrow rates increase
  • Lender yield increases

This ensures markets naturally balance supply and demand.

Kink-Based Rate Curve​

The model defines three utilization regions:

  1. Low Utilization (below u_low)

    • Borrow rate is fixed at a minimum level

  2. Normal Utilization (between u_low and u_crit)

    • Rates increase linearly

  3. High Utilization (above u_crit)

    • Rates increase more aggressively

This structure creates a kinked interest rate curve, where borrowing becomes more expensive as liquidity becomes scarce.

Borrow rates are capped at high utilization levels.

  • Maximum rates are bounded (e.g. capped APR)
  • Prevents extreme spikes during liquidity shortages
  • Gives borrowers time to adjust positions

This is particularly important in isolated markets where liquidity can temporarily reach 100%.

Deterministic Rates​

At any point in time, the model produces a deterministic rate based on utilization.

This means:

  • Borrowers always know the current rate
  • Rates are transparent and predictable
  • No hidden or discretionary pricing

Managed Interest Rate Curves​

Markets can optionally use a managed configuration.

In this setup:

  • Admins can adjust the curve parameters up to a cap
  • The slope can be made steeper or flatter
  • The equilibrium utilization range can be shifted

This allows markets to better match:

  • Asset-specific risk
  • Liquidity conditions

Floor Rates​

The model supports minimum rate zones.

For example:

  • Borrow rate can be fixed at 4% between 0%–50% utilization

This ensures:

  • Stable baseline yield for lenders
  • Predictable costs for borrowers

Fixed Rate Markets​

Silo's Dynamic Kink Interest Rate Model also supports fixed-rate configurations.

Markets can:

  • Use a predefined static borrow rate
  • Be switched to a fixed-rate model by an admin

This enables:

  • Predictable borrowing costs
  • Specialized credit markets

Continuous Compounding​

Interest accrues using continuous compounding.

This means:

  • Interest grows smoothly over time
  • Rates are applied continuously rather than in discrete steps

This improves accuracy and reflects real-time market conditions.

Transparency​

Silo lending app provides full visibility into interest rate models.

Users can view:

  • The full rate curve
  • Current utilization
  • Borrow and supply rates

This information is available in the Yield section of each market.

Borrow Curve

Key Insight​

The interest rate model is not just pricing—it is a control system:

  • It attracts liquidity when markets are stressed
  • It reduces borrowing when liquidity is scarce
  • It stabilizes each isolated market independently