> For the complete documentation index, see [llms.txt](https://docs.drops.co/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.drops.co/lending-pools/interest-rates.md). # Interest rates Each lending pool has own set of interest rate ### Utilization rate All interest rates in Drops are determined as a function of a metric known as the **utilization rate**. The utilization rate $$U\_a$$ for a money market $$a$$ is defined as: $$U\_a = Borrows\_a / (Cash\_a + Borrows\_a - Reserves\_a)$$ * $$Borrows\_a$$ refers to the amount of $$a$$ borrowed. * $$Cash\_a$$ refers to the amount of $$a$$ left in the system. * $$Reserves\_a$$ refers to the amount of $$a$$ that Drops keeps as profit. Intuitively speaking, this is the percentage of money borrowed out of the total money supplied. ### Borrow & Supply rates The borrowing rate's calculation depends on something called an **interest rate model** - the algorithmic model to determine a money market's borrow and supply rates. Borrow and supply rates are calculated using the utilization rate and several arbitrary constants. Markets follow what is known as the "Jump Rate" model, which contains the following parameters: * Base rate per year - the minimum borrowing rate * Multiplier per year - the rate of increase in interest rate with respect to utilization * Kink - the point in the model in which the model follows the jump multiplier * Jump Multiplier per year - the rate of increase in the interest rate with respect to utilization after the "kink" The borrow rate of the jump rate model is defined as follows: $$ \begin{aligned} \text{Borrow Interest Rate} &= \text{Multiplier} \* min(U\_a, \text{Kink}) \ &+ \text{Jump Multiplier} \* max(0, U\_a - \text{Kink}) \ &+ \text{Base Rate} \end{aligned} $$ --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.drops.co/lending-pools/interest-rates.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.