Jump (Kink) Model

The jump (Kink) Model is a formula that is used for markets that have typically higher historical utilization. The resulting interest rate in this model will be significantly higher than that under the Standard Model regime to encourage heavier deposits and discourage further borrowing.

Borrow rate

Base Rate 
+ 
[Multiplier * min(Kink, Utilization)] 
+  
[Jump Multiplier * max(0, Utilization - Kink)]

Deposit rate

Borrow Rate x Utilization Rate x (1 - Reserve Factor) 

The Key Parameters are defined as below;

Kink

The cut-off point in utilization rate where interest rate follows the Jump Model (e.g., 80%)

Base Rate

The minimum (floor) borrowing rate

Base Rate

The minimum (floor) borrowing rate

Multiplier

Scale factor per utilization

Utilization Rate

Total Assets borrowed / Total assets Deposited

Reserve Factor

Percentage of the spread between Deposit & borrow (the protocol's revenue to be kept in treasury)

From the formula, we can see that Utilization Rate is the only dynamic parameter, whereas Base Rate, Multiplier, and Reserve Factor are determined as “constant”.