Interest Rate Model

Mitigating liquidity risk through the borrow interest rate model

Vinci’s interest rate strategy is calibrated to manage liquidity risk and optimise utilisation. The borrow interest rates come from the UUU
.
Each currency reserve is characterised by its utilisation rate UUU
 :
 U=TotalBorrows/TotalLiquidityU \hspace{1mm} = \hspace{1mm} Total Borrows \hspace{2mm} / \hspace{2mm}Total LiquidityU=TotalBorrows/TotalLiquidity
 
​UUU
monitors which share of the reserve’s total capital is borrowed at time ttt
.
​UUU
is an indicator of the availability of capital in the pool. The interest rate model is used to manage liquidity risk through user incentivises to support liquidity:
When capital is available: low interest rates to encourage loans.
When capital is scarce: high interest rates to encourage repayments of loans and additional deposits.
Interest Rate Model
Liquidity risk materialises when utilisation is high, its becomes more problematic as UUU
 gets closer to 100%. To tailor the model to this constraint, the interest rate curve is split in two parts around an optimal utilisation rate UoptimalU_{optimal} Uoptimal​
. Before  UoptimalU_{optimal} Uoptimal​
the slope is small, after it starts rising sharply. 
The interest rateRtR_tRt​
follows the model:
​ifU<Uoptimal:Rt=R0+UtUoptimalRslope1if \hspace{1mm} U < U_{optimal}:  \hspace{1cm}  R_t = R_0 + \frac{U_t}{U_{optimal}} R_{slope1}ifU<Uoptimal​:Rt​=R0​+Uoptimal​Ut​​Rslope1​
   
​ifU≥Uoptimal:Rt=R0+Rslope1+Ut−Uoptimal1−UoptimalRslope2if \hspace{1mm} U \geq  U_{optimal}:  \hspace{1cm} R_t = R_0 + R_{slope1} + \frac{U_t-U_{optimal}}{1-U_{optimal}}R_{slope2}ifU≥Uoptimal​:Rt​=R0​+Rslope1​+1−Uoptimal​Ut​−Uoptimal​​Rslope2​
​

The resulting actual borrow rate is:
 ActualAPY=(1+TheoreticalAPY/secsperyear)secsperyear−1Actual APY = (1+Theoretical APY/secsperyear)^{secsperyear}-1ActualAPY=(1+TheoreticalAPY/secsperyear)secsperyear−1
​
When U<UoptimalU < U_{optimal}U<Uoptimal​
 the borrow interest rates increase slowly with utilisation
When U≥UoptimalU \geq  U_{optimal}U≥Uoptimal​
 the borrow interest rates increase sharply with utilisation to above 50% APY if the liquidity is fully utilised.
Deposit APY
The borrow interest rates paid are distributed as yield for vToken holders who have deposited in the protocol, excluding a share of yields sent to the ecosystem reserve defined by the reserve factor. This interest rate is paid on the capital that is lent out then shared among all the liquidity providers. The deposit APY, DtD_tDt​
, is:
​Dt=UtIt(1−Rt)D_t = U_t I_t(1-R_t)Dt​=Ut​It​(1−Rt​)
​
​UtU_tUt​
, the utilisation ratio
​ItI_tIt​
, the borrow interest rate
​RtR_tRt​
, the reserve factor
Reserve Factor
The reserve factor allocates a share of the protocol's interests to a collector contract as reserve for the ecosystem incentives.
Interest Rate Model Parameters
NFT Collection
U_optimal 
Base
Slope 1
Slope 2
Reserve Factor
CryptoPunks
45%
1%
4%
80%
30%
Bored Ape Yacht Club
45%
1%
4%
80%
30%
Mutant Ape Yacht Club
45%
1%
4%
80%
30%
Moonbirds
45%
1.5%
6%
100%
30%
Doodles
45%
1.5%
6%
100%
30%
Azuki
45%
1.5%
6%
100%
30%
CLONE X
45%
1.5%
6%
100%
30%
Interest Rate Curve

NFT Collection	U_optimal	Base	Slope 1	Slope 2	Reserve Factor
CryptoPunks	45%	1%	4%	80%	30%
Bored Ape Yacht Club	45%	1%	4%	80%	30%
Mutant Ape Yacht Club	45%	1%	4%	80%	30%
Moonbirds	45%	1.5%	6%	100%	30%
Doodles	45%	1.5%	6%	100%	30%
Azuki	45%	1.5%	6%	100%	30%
CLONE X	45%	1.5%	6%	100%	30%

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Last modified 6mo ago