# Interest Rate Model

NAVI uses a utilization-based interest rate model to dynamically adjust borrow and supply APR based on market conditions. This ensures:

* Borrowers pay more when liquidity becomes scarce
* Suppliers earn more when capital is actively utilized
* The protocol remains balanced and sustainable

All rates adjust in real time based on asset utilization.

### Core Parameters

Each asset reserve has the following parameters:

* Base Rate – Minimum borrow rate when utilization is zero
* Multiplier (Slope 1) – Rate of increase before optimal utilization
* Jump Rate Multiplier (Slope 2) – Rate of increase after optimal utilization
* Optimal Utilization (Kink Point) – Threshold where the rate curve becomes steeper

### Utilization Rate

Utilization Rate (U) measures how much liquidity is currently borrowed:

$$Utilization Rate = Total Borrowed / (Total Borrowed + Available Liquidity)$$

This metric directly determines both Borrow APR and Supply APR.

### How Borrow APR Is Calculated

The borrow rate follows a piecewise linear model:

**When Utilization < Optimal Utilization:**

$$Borrow APR = Base Rate + (Utilization × Multiplier)$$

**When Utilization ≥ Optimal Utilization:**

$$Borrow APR = Base Rate + (Utilization × Multiplier) + (Utilization − Optimal Utilization) × Jump Rate Multiplier$$

This structure increases borrowing costs sharply when liquidity becomes tight, helping prevent excessive leverage.

### Supply APR Calculation

Suppliers earn a portion of the interest paid by borrowers:

$$Supply APR = Borrow APR × Utilization × (1 − Reserve Factor)$$

The Reserve Factor is a protocol-set percentage allocated to the treasury for sustainability and risk coverage.

### Example

* Total Supply: 1000 SUI
* Total Borrowed: 500 SUI
* Utilization = 50%

Parameters:

* Base Rate: 2%
* Multiplier: 10%
* Optimal Utilization: 80%
* Jump Rate Multiplier: 50%

Since 50% < 80%:

Borrow APR = 2% + (0.5 × 10%) = 7%

Assuming Reserve Factor = 10%:

Supply APR = 7% × 0.5 × (1 − 0.1) = 3.15%

### Where to View the Interest Rate Model

You can click on any asset from the Lending page to access its details page. The asset’s interest rate model parameters are displayed in the “Interest Rate Model” section.

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