Set the Rate at Target
This tutorial guides you through the process of setting and managing interest rates for your new markets:
Understanding Rate Mechanics
The Interest Rate Model (IRM) follows specific rules that market creators should understand:
| Category | Condition | Rate Change |
|---|---|---|
| Instantaneous Changes | 90% → 0% Utilization | Rate ÷4 |
| 0% → 90% Utilization | Rate ×4 | |
| 90% → 100% Utilization | Rate ×4 | |
| 100% → 90% Utilization | Rate ÷4 | |
| Time-Based Changes | At 0% Utilization | Rate halves every 5 days |
| At 100% Utilization | Rate doubles every 5 days | |
| At 90% Utilization | Rate remains constant | |
| Market Creation | Initial State | 4% APR at 90% utilization |
| Without Activity | Starts at 0% utilization |
Best Practices for Rate Setting
Initial Market Setup
- The market starts with 0% utilization despite having a target rate of 4% APR at 90% utilization
- Without activity, rates will continuously decrease (halving every 5 days)
- To prevent this, seed the market immediately after creation
Targeting Specific Rates
- To increase rates: Set utilization above 90%
- To decrease rates: Set utilization below 90%
- Avoid 100% utilization as rates will double every 5 days
- Plan rate adjustments in advance due to the time-based mechanics
Avoiding Liquidity Traps
- Low rates can create liquidity traps where:
- Lenders are discouraged from depositing
- Borrowers can't access liquidity due to insufficient deposits
- Maintain healthy rates from market launch to ensure proper market function
Consider using the PublicAllocator (PA) to manage idle liquidity while maintaining desired utilization rates. This allows for rate management while keeping assets available for borrowing across markets.
For more details:
- IRM Documentation: Concept IRM Doc
- Implementation: Morpho V1 IRM on GitHub