The Jump Rate Interest Model

The Jump Rate Interest Model

In Defi lending and borrowing platforms interest rates change based on supply and demand. The Jump Rate Interest Model is designed to keep lending pools liquid by adjusting rates dynamically.

In contrast to traditional models that predict gradual interest rate changes, this model helps maintain liquidity by keeping rates stable under normal conditions and allowing sudden rises when borrowing demand is too high.

How it works

When utilization is low to moderate, interest rates rise gradually, ensuring predictable costs for borrowers and stable returns for lenders.

However, when utilization reaches a critical level (meaning most available funds are borrowed) the model triggers a sudden spike in interest rates. This jump discourages further borrowing, encourages repayments, and attracts more deposits.

Why is it useful?

• Prevents liquidity crises: high rates discourage excessive borrowing.

• Adapts to crypto volatility: quickly responds to market demand shifts.

• Optimizes capital efficiency: keeps lending protocols balanced.

By adapting quickly to market shifts, the Jump Rate Interest Model ensures DeFi lending remains efficient, liquid, and sustainable, even in unpredictable conditions.