# Interest Rate Model

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Automating lending operations while maintaining a certain level of liquidity requires an efficient Interest Rate Model that balances supply and demand around an optimal level of utilization.
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For each Lending Pool, let's define, at time t, the Utilization Rate $$U$$: 

$$
U\_t = \frac{B\_t}{S\_t}
$$

​where $$B\_t$$​ is the total Borrow Balance of Token A, and $$S\_t$$​ is the total Supply Balance of Token A. 

* When $$U$$​ is low, it means that most of the deposits are sitting in the reserve. They are easily accessible for immediate withdrawal but generate low interest for lenders.
* When $$U$$​ is high, it means that most of the deposits have been lent. They generate high interest for lenders but very little liquidity is available for immediate withdrawal. 

Let's define $$U^*$$​as the optimal level of utilization for lenders. The Interest Rate Model's objective is to find the optimal borrowing rate $$r^*$$​ for which $$U = U^\*$$. 

* If $$U$$ settles below $$U^\*$$ , we can assume that the interest rate is not attractive enough for borrowers and needs to be decreased.
* If $$U$$​ settles above $$U^\*$$​, we can assume that $$r$$ is too attractive for borrowers and needs to be increased. 

**Securd** has implemented an innovative interest rate model that allows a better convergence towards optimal utilization levels as well as a better adaptation to evolving Supply & Demand. Extensive details will be published soon.