Interest-rate models

“The protocol pays interest” hides the mechanism that computes it. On this site two mechanisms are documented well enough to contrast. Aave’s rate is a function of how full the reserve is. Maker’s stability fee is a parameter governance sets, accrued by a global multiplier per collateral type.

Aave’s kink

The V3 strategy documentation describes two slopes around OPTIMAL_USAGE_RATIO. Below that utilization, the variable borrow rate is a base plus a fraction of the first slope. Above it, the second slope applies to the remaining distance up to full utilization. The second slope is the expensive region. It is how the pool shouts that cash is scarce.

The function returns a liquidity rate and a variable borrow rate in ray units, a fixed-point scale of 1e27. Aave treats those values as annual rates and compounds them when the reserve index is updated. The reserve factor is the share of interest that does not go to suppliers. So the supply rate is not utilization * borrow rate. It is that product after the treasury’s cut, and only if no other adjustment is configured.

Rates are stored as indexes. The borrow index grows with the variable rate. Debt-token balances are scaled by it. The liquidity index grows with the supply rate. aToken balances are scaled by it. Nobody is sent a separate interest payment. The next interaction reads a larger balance. That is why a view of balanceOf on an aToken can change between blocks without a transfer.

V4’s overview keeps a drawn rate from hub utilization and stacks a risk premium on top. The premium is not a third slope of the same curve. It depends on which collateral covers the debt. Two borrowers of the same asset can owe different total rates. Quoting “the USDC borrow rate” was already incomplete in V3 once eMode and caps existed. In V4 it is incomplete even for the interest formula.

Maker’s duty

The Jug stores a per-second rate: a collateral-specific duty plus a global base. drip turns elapsed time into a multiplier and folds it into Vat.ilks[ilk].rate. Every vault of that ilk sees its debt, art * rate, rise together. The surplus from the fee is credited to the system, not to a depositor in the way an aToken balance grows. The closer analogy to an Aave supplier is a holder of sUSDS, and the Sky Savings Rate is yet a third number, set by governance and paid from protocol revenue rather than from a utilization kink.

If nobody calls drip, the multiplier does not move. Fees for a vault opened and closed between calls can be missed. Aave’s index has the same laziness, but the next pool interaction accrues it. Maker needs a caller for that ilk. Keepers do it because a stale rate also stales the safety check.

What not to average

A dashboard that shows one “DeFi lending rate” is averaging different contracts. Aave’s rate will move in the same block as a large borrow. Maker’s will not, until governance changes duty or the next drip applies the rate already set. crvUSD’s borrower interest, mentioned on Curve’s overview as the source of savings-crvUSD yield, is a third implementation and is not either formula. Use the protocol page before displaying a number.