# Borrow interest rate

Utilization rate can also be viewed as an indicator of liquidity risk. Liquidity risk, which is the ability for lenders to withdraw their assets, increases as utilization increases and all becomes exponentially riskier as the pool’s utilization advances towards 100%. <br>

In view of this, calculation of borrow rates is broken down into 2 parts:

* The interest rate calculation when utilization is below a set optional rate (U optimal), and&#x20;
* the calculation when Utilization is above this optimal point&#x20;

If U current <= U optimal:

***Borrow interest rate = Base Borrow Rate + (U current/U optimal)(Rate Slope 1)***

If U current > U optimal:

***Borrow interest rate = Base Borrow Rate + Rate Slope 1 + \[(U current - U optimal)/(1 - U optimal)]\(Rate Slope 2)***

U optimal represents the target utilization rate of a lending pool that Amply tries to encourage. We aim to encourage fund usage up to this target utilization, but discourage usage above this threshold. This explains why the interest rate model is “kinked”, where rates slowly rise up to U optimal, but then rise faster beyond that.&#x20;

<figure><img src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXey1dWC0FNRHIFbOPCYh7hsE_usD5vMiyxFH4yCTcv-iXHA1-cA-4VXbiJBwdkxIqbW-jtu8JXNbMUA2CnOWMIfiIR_4rrbNPOPr45fxK_a_PsYhClEZsLFxxk7ZaYzQBlnKz45xtLwrYHBjJVqH8gi_oUu?key=nW72Yf9ZiTa3-CY0N1fvtw" alt=""><figcaption></figcaption></figure>

In the diagram above, the “kink” area of the area is what Amply would consider utilization optimal. If the utilization rate rises above this point, interest rates start increasing much faster in order to disincentive borrowing and incentivize more supply.&#x20;

This optimal pool usage is dependent on the risk profile of an asset. For example, a more volatile asset will have a lower optimal utilization rate (i.e. 45%), while a stablecoin would have a higher point (i.e. 80%).


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