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
For more details:
- IRM Documentation: Concept IRM Doc
- Implementation: Morpho Blue IRM on GitHub