Each pool is characterized by a utilization status, based on the utilization rate:
Until utilization = 99% or <95%
Each status corresponds to possible actions by lenders and borrowers:
- ACTIVE: Lenders: can deposit and withdraw; Borrower: can draw liquidity and repay.
- WARNING: Lenders: can deposit and withdraw; Borrower: can only repay. Interest will continue to accrue.
- PROVISIONAL DEFAULT: Lenders: deposit and withdrawals are blocked; Borrower: has 120 hours to deposit and get the utilization rate under 95%
If past 120 hours the borrower has not brought the utilization rate below 95 percent, the pool will go into Default.
The relationship between interest rates and pool utilization rates follow curves set by the Team, based on prevailing CeFi lending rates to market makers.
- The curve has its lowest interest rate (Ym) at utilization (Xm) in order to achieve optimal utilization and capital efficiency;
- The curve discourages utilization in lower and extreme high ranges;
- The borrow APR steadily decreases with utilization from X0 to Xm. This compensates lenders who maintain funds within the pool with a more favorable interest rate when the borrower utilization rate is below optimal;
- Concurrently the curve increases sharply from Xm to X1, discouraging high utilization. This design reinforces the exit liquidity available for lenders even when utilization is optimal;
- During periods of volatility where liquidity withdrawal rates are higher, utilization/interest rates will peak, incentivising borrowers to reduce utilization in order to avoid higher interest rates. Higher interest rates may also attract new lenders to the pool.