8. Interest‑Rate Model

The jump-rate curve and the “Estimated APY” figure you see in the dApp today only reflect the interest paid by borrowers. They do not yet include the share of the loan-opening fee or the liquidation fees that go back to LPs and FLOW stakers. Once we have enough real-world data on those fees, we’ll fold them into the APY calculation and update both the chart and the dApp display.

Interest rates are Fixed for your loan — When you borrow, the current pool rate is locked for the lifetime of your position. Later borrowers may pay more (or less) as utilisation changes, but your rate stays the same until you fully repay.*

Why this model benefits borrowers

• Predictable repayments → once your order executes, your APR never spikes—even if utilisation later hits 99 %.

• Low base rate → pools start at just 5 % APR, incentivising borrowers to borrow aggressively when loans are affordable.

• Gentle slope below 90 % utilisation → interest climbs slowly, so even at 70–80 % pool usage rates remain competitive.

• Borrow‑first advantage → early borrowers can lock in a cheap rate and keep it, while fresh borrowers shoulder higher costs if the pool tightens.

Despite the steep slope after the 90 % kink, APR remains reasonable at such high utilization levels, peaking at 25%. At such levels, borrowers would be encouraged to close their loans quickly. LPs and stakers on the other hand would benefit from faster repayments and additional opening fees at these levels.

Why this model also rewards lenders

As the pool fills, the borrow rate—and your yield—goes up automatically. Once utilisation passes 90 %, the rate climbs even faster, while 10 % of every interest payment is peeled off into a reserve that acts as insurance/emergency fund.

Remember, though, interest actually hits the pool only when borrowers repay. If you withdraw your supply before that happens, you give up your share of those payouts. Lending on Flow V1 is designed with long-term LPs in mind.