Borrower Demand Curve

The Borrower Demand Curve represents the relationship between the cost of borrowing and the amount of capital that market participants are willing to borrow. As the interest rate increases, the demand for borrowing typically decreases because the cost of leverage becomes higher.

Conversely, when interest rates are low, demand increases. The shape of this curve is influenced by the perceived profitability of using borrowed capital for activities like margin trading or yield farming.

Protocol developers model this curve to ensure that the interest rate remains at a point that supports sustainable lending volume. By understanding this curve, protocols can better predict how their interest rate models will impact market behavior and overall liquidity.