Interest Rates
Traditionally the interest rate is something that is negotiated and set based upon many different factors. Fortress utilizes an interest rate model which utilizes an algorithm that achieves an interest rate equilibrium, based entirely on supply and demand, and is applied to all lenders and borrowers uniformly.
Sound economic policy would tell you that interest rates should increase as a function of demand; when demand is low, interest rates should be low, and when demand is high, interest rates should be high.
Because of this, there are dynamically set interest rates on both the supply side as well as the borrow side, of each money market on the protocol. Because the protocol can’t guarantee liquidity, it utilizes the Fortress interest rate model, to increasingly incentivize adding liquidity, when liquidity is the lowest, in times of high demand.
Last modified 2yr ago