Each pool is characterized by a utilization status, based on the utilization rate:
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%
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.