Interest Rates Mechanism and Risk Management

PreviousOracles NextZest Protocol Earn and BTCz Overview

Last updated 22 days ago

Interest Rates Mechanism and Risk Management

Zest Interest Rates Mechanism

Borrowing rates on Zest Protocol adjust dynamically based on several key metrics:

Utilization Rate: This shows the proportion of funds currently lent out from the pool. It’s calculated as the amount borrowed divided by the total pool size (borrowed + available). For instance, if 70% of the pool is in use, the utilization rate is 70%.
Target Utilization Rate: This is the desired level of usage the protocol aims to sustain. At this point, interest rates are calibrated to promote balanced activity between lenders and borrowers.
Interest Rate at Target Utilization: This is the borrowing rate applied when the pool is operating at its target utilization. It’s designed to support steady borrowing demand while maintaining healthy pool dynamics.
Maximum Borrowing Rate: As utilization climbs beyond the target, the borrowing rate increases progressively until it reaches a capped maximum. This mechanism helps control borrowing pressure and encourages repayments, safeguarding the pool’s liquidity.

To explore how rates behave for each asset, navigate to the Borrow Stacks Market, click on “Asset Overview”, then select “Details” next to the asset.

There, scroll down to find a chart illustrating current utilization, the target rate, and how borrowing rates adjusts with the change of pool usage.

Zest Risk Management

Zest puts careful consideration on the assets that can be used and at the current stage they can fall under 3 categories:

Collateral Assets: These assets can be deposited, borrowed, and used as collateral, subject to protocol-defined limits. This category includes highly liquid assets like STX, sBTC, and LSTs (stSTXbtc as collateral only), thanks to their strong DEX liquidity.
Borrow-Only Assets: These assets can be borrowed but cannot be used as collateral. Examples include aeUSDC, USDA, aUSD, USDh and DIKO.
E-Mode Assets: Assets with deep liquidity and strong price correlation, allowing for higher borrowing limits within this group compared to standard borrowing such as STX, stSTX (and stSTXbtc as collateral only)

The key factors considered when classifying assets include their on-chain DEX liquidity, the potential price impact of liquidations, and how quickly liquidators can execute those liquidations.

PreviousOracles NextZest Protocol Earn and BTCz Overview

Last updated 22 days ago

Zest Interest Rates Mechanism

Borrowing rates on Zest Protocol adjust dynamically based on several key metrics:

Utilization Rate: This shows the proportion of funds currently lent out from the pool. It’s calculated as the amount borrowed divided by the total pool size (borrowed + available). For instance, if 70% of the pool is in use, the utilization rate is 70%.
Target Utilization Rate: This is the desired level of usage the protocol aims to sustain. At this point, interest rates are calibrated to promote balanced activity between lenders and borrowers.
Interest Rate at Target Utilization: This is the borrowing rate applied when the pool is operating at its target utilization. It’s designed to support steady borrowing demand while maintaining healthy pool dynamics.
Maximum Borrowing Rate: As utilization climbs beyond the target, the borrowing rate increases progressively until it reaches a capped maximum. This mechanism helps control borrowing pressure and encourages repayments, safeguarding the pool’s liquidity.

To explore how rates behave for each asset, navigate to the Borrow Stacks Market, click on “Asset Overview”, then select “Details” next to the asset.

There, scroll down to find a chart illustrating current utilization, the target rate, and how borrowing rates adjusts with the change of pool usage.

Zest Risk Management

Zest puts careful consideration on the assets that can be used and at the current stage they can fall under 3 categories:

Collateral Assets: These assets can be deposited, borrowed, and used as collateral, subject to protocol-defined limits. This category includes highly liquid assets like STX, sBTC, and LSTs (stSTXbtc as collateral only), thanks to their strong DEX liquidity.
Borrow-Only Assets: These assets can be borrowed but cannot be used as collateral. Examples include aeUSDC, USDA, aUSD, USDh and DIKO.
E-Mode Assets: Assets with deep liquidity and strong price correlation, allowing for higher borrowing limits within this group compared to standard borrowing such as STX, stSTX (and stSTXbtc as collateral only)

The key factors considered when classifying assets include their on-chain DEX liquidity, the potential price impact of liquidations, and how quickly liquidators can execute those liquidations.