Interest rate model
Interest rates fall into two categories:
- Supplier rates – the annualised rates paid to suppliers
- Borrower rates – the annualised rates paid by borrowers
Borrowers’ interest is distributed to the suppliers and the DAO fund operated by Omm Token (OMM) holders. Interest rates are determined as a function of utilisation rate, and can be expressed in the below formulae:
Both interest rates rise in tandem with utilisation. This helps prevent a bank run situation because as utilisation increases, borrowers become more incentivised to pay off their debt (rising interest rates on debt), and suppliers become more incentivised to deposit more assets (rising interest rates on deposits).
Both paying off debt and supplying additional assets increases the liquidity of the Omm protocol.
The utilisation rates of all money markets are capped at 90%. At this point, suppliers can still redeem but borrowers can’t borrow, preventing a bank run situation.