Lending Protocol Interest Rates

Lending protocol interest rates are dynamically determined by supply and demand within a lending pool. When utilization is high, meaning most of the assets in the pool are borrowed, interest rates increase to encourage more lenders to deposit capital.

Conversely, when utilization is low, interest rates decrease to attract borrowers. These rates are governed by algorithms that aim to balance the pool's liquidity and ensure that lenders can withdraw their funds when needed.

By providing a market-based approach to interest, these protocols allow for efficient capital allocation across the entire decentralized finance ecosystem.