Interest Rate Model

With Enclabs Finance, all interest rates are determined based on a metric called the utilization rate. The interest rates within the app are directly linked to this utilization rate, which essentially represents the proportion of total assets borrowed compared to the total assets supplied. A high utilization rate signifies a significant amount of borrowing activity, whereas a low ratio indicates the opposite.

Enclabs's interest rate models are designed to adapt dynamically by taking the utilization rate into account. When the utilization rate is high, it leads to higher interest payments from borrowers, which, in turn, results in higher interest payments to suppliers. This system encourages suppliers to inject more assets into the protocol, ensuring a healthy supply of available liquidity.

Currently, Enclabs employs the Jump Rate Model, which excels in incentivizing liquidity, particularly in situations of higher utilization rates.

The interest model in details

Utilization Rate: This pivotal metric governs the interest rate, denoting the proportion of borrowed assets to supplied assets in a given market.

Base Rate: This sets the floor for the interest rate when the utilization rate is low.

Multiplier: This dictates the pace at which the interest rate escalates with rising utilization rates.

Kink: This denotes a specific utilization threshold within the model.

Jump Multiplier: This comes into play after surpassing the kink point, leading to a more rapid increase in the interest rate for higher utilization rates.

By employing this framework, Enclave aims to:

• Reward Suppliers: Elevated utilization (greater borrowing) translates to heightened interest rates for suppliers.

• Encourage Repayment: Borrowers encounter elevated interest rates with increasing utilization, motivating them to settle their loans promptly and uphold liquidity.

In essence, the jump rate model facilitates the maintenance of a balanced equilibrium between supply and demand within Enclave's lending markets.

Two Kinks Interest Rate Curve

The 2-Kink Interest Rate Curve introduces an innovative model designed to optimize interest rates and utilization across Enclabs protocol markets. By incorporating two distinct "kinks," this model offers enhanced flexibility in managing market dynamics, improving both the predictability and efficiency of Annual Percentage Yields (APYs) for borrowers and suppliers.

This design mitigates APY volatility during periods of high demand, such as launchpool events, while encouraging greater participation by providing more stable and predictable borrowing costs and returns.

2-Kink Interest Rate Model Architecture

The 2-Kink Interest Rate Curve is integrated into the Interest Rate Models used by Enclabs markets, introducing two distinct kinks in the curve to differentiate between the initial utilization phase and the high-utilization phase. This structure enables more precise control over borrowing and supply rates as utilization levels rise.

By incorporating two kinks alongside base rates, the protocol achieves a more accurate balance between supply and borrowing demand, optimizing market efficiency and participant incentives.