Glossary · DeFi
Interest rate curve
Also: interest rate model, IRM, kink
An interest rate curve is the formula mapping a lending pool's utilization to its borrow rate, typically rising gently up to an optimal utilization point and steeply above it so that rates pull in new deposits.
Related terms
- Utilization rate
- Utilization rate is the share of a lending pool's deposits currently borrowed, the input to the interest rate curve and the reason withdrawals can queue when it approaches 100 percent.
- Liquidity risk
- Liquidity risk in DeFi is the risk that a depositor cannot withdraw on demand because the underlying capital is lent out or locked, a distinct problem from insolvency since the position can be fully backed and still illiquid.
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