Interest rates can vary for each token and are adjusted based on current conditions. Borrowing rates are influenced by the utilization rate, which is the ratio of assets currently borrowed to the total assets available for borrowing. Since it's a P2P protocol, each borrowed token must come from a lender, which means there might be times when all tokens are borrowed, preventing lenders from withdrawing their supplied tokens.
To help with this, markets aim for an optimal utilization rate, typically around 80%. When the utilization rate is below this target, borrowing rates are lower to encourage borrowers to take out loans and offer better returns for lenders. Conversely, if the utilization rate exceeds the target, borrowing rates increase significantly to discourage new loans and encourage repayment, ensuring that lenders can access their tokens again.
The interest model is made up of two linear functions that connect at the optimal utilization rate. Parameters like slopes, the optimal utilization rate, and base rates can be customized for each market. Metal X Lending offers Variable Loans, where the borrowing rate changes based on the current utilization rate, so it can fluctuate over time. It's also worth noting that all borrowers in the same market pay the same rates on their loans.