INTEREST RATE MODEL
Gorilix Protocol will observe an interest rate model similar to Compound Protocol where the interest rate shall be arrived at as a function of the liquidity available in each market which will be subject to the fluctuations based on the demand and supply curve. Hence, if the liquidity is ample, the interest rate would be low and if the liquidity is crunched, then the interest rate would increase which will incentivize the new supply of crypto assets followed by the repayment of the borrowing.
All the interest rates within Gorilix Protocol will be calculated as a function of a metric which we call as utilization rate. The utilization rate- uX shall be arrived for a money market “X” as illustrated below:
uX = BorrowingsX / (CashX + BorrowingsX - ReservesX) |
❖ BorrowingsX: Refers to the amount of X borrowed.
❖ CashX: Refers to the amount of X left in the protocol
❖ ReservesX: Refers to the amount of X that Gorilix DeFi will keep as profit.
Let’s understand this with the help of an example where it is assumed that the reserves are NIL. In this case, if Alex will supply $300 USDT, Brad will supply $200 USDT, and Charlie will borrow $100 USDT, then the total borrowings would amount to $100 and the total cash left in the protocol will be $300 + $200 - $100 = $400, hence the utilization rate will be:
100/(400+100)=0.2% |
If the utilization rate is high, then it would reflect a lot of borrowing happening within the protocol, which will eventually escalate the interest rate and promote more and more users to supply cash within the protocol. If the ratio is low, then it would reflect the lower demand for borrowing, which will eventually force the interest rates to plunge down, motivating more and more users to borrow the cash from the protocol.
The borrow and supply rates in the Gorilix Protocol shall be calculated with the help of utilization rate followed by some arbitrary constants. The supply interest rate- sX shall be arrived for a money market “X” as illustrated below:
sX = Borrowing Interest Rate X * uX * (1 - Reserve FactorX) |
❖ uX: Refers to the utilization rate for the money market X.
❖ Borrowing Interest Rate X: Refers to the interest rate that the borrowers must pay for the Market X.
❖ Reserves Factor X: Refers to the percentage of the spread between the supply and borrow rates that the Gorilix Protocol will keep as profit.
Moving forward, the borrow interest rate will be a dependency of the standard interest rate model. This linear interest model calculates the supply and borrow rates for the money market by taking the following two factors in the account:
Base Rate: Refers to the minimum borrowing rate per year.
Multiplier: Refers to the rate of escalation in interest rate per year with respect to the uX
Note: The base rate and the multiplier will be different for different markets.
Borrow Interest Rate = Multiplier * uX + Base Rate |
Now, let’s understand the calculation of Borrow and Supply rates with the help of an example of wrapped Bitcoin (WBTC) market. Assuming that the total number of WBTC supplied to the Gorilix Protocol are 1000 where the users have borrowed a total of 1000 WBTC, the uX in this case will be 10%.
Now, let’s say that gWBTC market uses an interest rate model in which the base rate is 2% whereas the multiplier is 30%. With these conditions, the borrow interest rate will be
30%∗10%+2%=5.0% |
Moving forward, let’s assume that the reserve factor in the WBTC market to be 20%. Carrying forward this condition, the supply interest rate will be arrived as follows:
5.0%∗10%∗(1−20%)=0.4% |
The Gorilix Protocol shall not guarantee the liquidity of crypto assets, but would rely upon the interest rate model as disclosed above for incentivizing on the provision of liquidity to the protocol. If the demand for a particular crypto asset is sharply increased, then the liquidity of the Gorilix Protocol shall decline which will create a chain of events that will increase the interest rate, incentivize for supplying the assets and disincentivize for borrowing the assets.
With all DeFi activities of the Gorilix protocol depending upon correct price feeds, we will rely on trusted Oracles to report asset prices for the protocol to function correctly and never breach user trust. All Oracle prices feed on the Gorilix Protocol ecosystem, and its products will utilize the decentralized oracle networks powered by Chainlink and its Chainlink Client. Chainlink provides feeds from the top data networks feeds, including the Mainnets of Ethereum, Polygon, BSC, Arbitrum, Gnosis Chain, and Heco.
Last modified 9mo ago