Interest Rate Model
Osito Protocol employs a dynamic interest rate model that efficiently responds to market conditions. Unlike fixed or governance-determined rates, Osito's rates automatically adjust based on utilization.
Key Insight
Interest rates in Osito serve one primary purpose: to balance supply and demand of BERA in the protocol, ensuring sufficient liquidity while maximizing capital efficiency.
Dynamic Utilization-Based Rates
Utilization Rate
The fundamental metric that drives interest rates is the utilization rate:
Utilization Rate = Total BERA Borrowed / Total BERA SuppliedThis ratio directly measures the percentage of supplied BERA that is currently being used by borrowers in the protocol.
Target Utilization
Osito targets 90% utilization, which balances capital efficiency with reasonable liquidity for withdrawals. This is significantly higher than traditional protocols that typically target 70-80% utilization.
Rate Calculation
As utilization approaches the target, interest rates increase exponentially, creating powerful economic incentives to maintain balance in the protocol.
Interest Rate Formula
Base Interest Rate Formula
The protocol uses the following formula to calculate interest rates:
rate = baseRate + utilizationRate^kink * multiplierWhere:
- baseRate - minimum interest rate (0.5%)
- utilizationRate - current utilization (0.0 to 1.0)
- kink - exponential factor (2 - makes curve quadratic)
- multiplier - scaling factor (1000%)
Example Rate Points
| Utilization | Borrow APY | Supply APY |
|---|---|---|
| 50% | 3% | 1.5% |
| 80% | 7% | 5.6% |
| 90% | 10% | 9% |
| 95% | 15% | 14.25% |
Interest Accrual and Distribution
How Interest Accrues
Interest in Osito accrues with each block, compounding continuously:
- Interest is calculated using the per-second rate derived from the annual rate formula to ensure smooth compounding
- The interest accrual formula uses an interest index that tracks the cumulative interest since the protocol's inception
- This index-based approach ensures all users receive their proportional share of interest regardless of when they deposited or borrowed
Interest Distribution
Interest paid by borrowers flows directly to suppliers:
- 100% of interest paid by borrowers goes to suppliers - there are no protocol fees
- The supply APY equals the borrow APY multiplied by the utilization rate
supplyAPY = borrowAPY * utilizationRate - Interest is distributed proportionally based on each supplier's share of the total supply
System Benefits
Market Efficiency
When utilization is high, rates rise to attract more suppliers and discourage borrowing. When utilization is low, rates fall to encourage borrowing and reduce supply overcapacity.
Self-Balancing
The protocol automatically balances itself without requiring governance intervention. Market participants respond to economic incentives created by the dynamic rates.
Capital Efficiency
By targeting 90% utilization instead of the standard 70-80%, Osito achieves higher capital efficiency without increasing systemic risk due to its non-rehypothecation model.
Competitive Returns
The high target utilization combined with the direct pass-through of interest enables substantially higher returns for suppliers compared to traditional lending protocols.