Interest Rate Model

Amply utilizes a variable interest rate model for both borrowing and lending. This means the interest rates fluctuate based on market demand. Here's a simplified breakdown:

High Utilization: When there's a high demand for borrowing a particular asset (high utilization rate), borrow rates tend to increase, while supply rates become more attractive. This incentivizes users to deposit more of that asset to meet the borrowing demand.

Low Utilization: Conversely, when there's an excess of a particular asset in the lending pool (low utilization rate), borrow rates decrease, potentially making borrowing more appealing. Supply rates might also decrease to reflect this lower demand for borrowing.

Understanding Utilization Rate

The utilization rate is the percentage of deposited assets that are currently borrowed. It's calculated as:

Utilization Rate = Total Borrowed Amount / Total Supplied Amount

A higher utilization rate indicates a higher demand for borrowing, potentially leading to higher interest rates for borrowers and attractive returns for lenders.

If utilization rate is high (i.e. close to 100%), this means that most available funds are lent out so most lenders would not be able to withdraw their assets. This is why we have an incentive structure in place to encourage utilization to stay below a specified “optimal” level. This concept is explored more in depth in the following section.