# βοΈInterest Rate

Joule Finance employs jump interest rate model where the interest rate for supplying and borrowing increases gradually and linearly until the loan usage hits the threshold set. If the usage surpasses this ideal rate, the interest rate for supplying and borrowing sharply rises.

**Utilization Rate :-**

Borrow and Supply interest rates are dependent on **utilization**. It shows how much money is currently available in the pool and is defined as `Utilization = Total_Borrow / (Total_Deposit - Reserves)`

. Higher utilization indicates less available liquidity, resulting in increased Borrow and Supply rate.

**Borrow Rate :-**

Borrow rate mainly depends on four factors - base rate, utilization rate, multiplier rate and jump multiplier where base rate is the minimum borrow rate, multiplier rate is the rate of increase in interest rate with respect to utilization and jump rate is a higher multiplier that kicks in once the utilization rate exceeds optimal threshold (Kink). The borrow rates rise gently with increased utilization but spikes when utilization crosses Kink.

The formula for calculating the Borrow Interest Rate in this model is:

`Borrow_Interest_Rate = (Multiplier Γ minβ‘(U, Kink)) + (Jump_Multiplier Γ maxβ‘(0, U β Kink))+ Base_Rate`

**Supply rate :-**

Supply rate is based on current market conditions, which are influenced by:

Lending pool utilization: Higher usage indicates less available liquidity, resulting in increased APY

Borrowing interest: The interest paid by borrowers is distributed among lenders, based on the borrowing rate and the extent of utilization

The APY for lending is calculated as follows: `Lending APY = Utilization_Rate * Borrow_Rate * (1 - Reserve_Factor)`

Here, the Borrow Rate follows the jump interest rate model mentioned, and the Reserve Factor represents the protocol's fee.

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