# Interest Rate Model

This adaptive rate mechanism ensures sustainable market conditions for both Farmers and Lenders while maintaining capital efficiency.

Peapods Finance uses a dynamic, utilization-based interest rate model derived from Fraxlend. This model adjusts borrowing costs according to current market conditions, with rates increasing as utilization rises. It ensures that lenders are rewarded more when demand is high, while keeping costs manageable for borrowers during low activity.

The model is essential for driving real, emissions-free yield in LVF lending markets, and is particularly effective in scenarios like Self-Lending and Proof-of-Demand (PoD), where utilization begins at 100%.

Interest rates in LVF Pods dynamically adjust based on utilization:

* When utilization is high, **interest rates increase**, attracting external lenders who want to earn yield.
* As new liquidity enters the pool, **interest rates decrease**, ensuring borrowers can efficiently access capital without excessive costs.

<figure><img src="/files/C5NiRYhr0tSDU1NTBZm9" alt=""><figcaption></figcaption></figure>

### Interest Model Core Parameters and Definitions

| Parameter             | Value         | Description                                                                             |
| --------------------- | ------------- | --------------------------------------------------------------------------------------- |
| UTIL\_PREC            | 100,000       | Precision scalar for utilization (basis points: 100% = 100,000)                         |
| VERTEX\_UTILIZATION   | 92,000        | Utilization point at which the curve changes slope (92%)                                |
| MIN\_TARGET\_UTIL     | 95,000        | Lower bound of target utilization range (95%)                                           |
| MAX\_TARGET\_UTIL     | 97,000        | Upper bound of target utilization range (97%)                                           |
| ZERO\_UTIL\_RATE      | 157,680,000   | Base rate at 0% utilization (0.5% APR)                                                  |
| MIN\_FULL\_UTIL\_RATE | 9,460,800,000 | Interest rate at 100% utilization with minimum pressure (30% APR)                       |
| MAX\_FULL\_UTIL\_RATE | 1.5768e+12    | Maximum rate ceiling at 100% utilization (5,000% APR)                                   |
| VERTEX\_RATE\_PERCENT | 5e+17         | Defines rate acceleration post-vertex. Encodes both rate step (50%) and curve steepness |
| RATE\_HALF\_LIFE      | 129,600       | Half-life in seconds (\~1.5 days) for rate smoothing                                    |
| RATE\_PREC            | 1e+18         | Rate precision for internal math consistency                                            |


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