# ETHRISE Interest Rate Model

Interest rate model that used by ETHRISE

Risedle USDC Vault’s interest rate model is highly inspired by AAVE Protocol.

The borrow interest rate model is calibrated to manage liquidity risk, optimize utilization and specifically designed for leveraged tokens. The borrow interest rates come from the Utilization rate. Utilization rate is an indicator of the availability of USDC in the Risedle USDC Vault.

The interest rate model is used to manage liquidity risk through user incentivises to support liquidity:

When USDC supply is available: low interest rates to encourage investors to mint more Risedle Leveraged tokens.

When USDC supply is scarce: high interest rates to encourage Risedle Leveraged tokens redemption and additional USDC deposits.

$I_{t}$ is interest rate at timestamp $t$ defined below:

Where $U_{t}$ is the current utilization rate, $U_{t}$ is optimal utilization rate and it's set to 0.9 (90%), $I_{slope1}$ is set to 0.04 (4%) and $I_{slope2}$ is set to 0.60.6 (60%). The value of model parameters are chosen based on the batle-tested model parameter from AAVE Protocol.

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