# Interest Rate Model

These sections are a simplified version of our Interest Rate Model technical paper which can be found here.

Interest rate models define the amount of interest paid by borrowers to lenders. Since Silo is permission-less, interest rate models are used as an economic tool to encourage user behaviours that are aligned with the protocol's interests in different scenarios.

This can include, but is not limited to:

Encouraging deposits and repayments when utilization is high by increasing interest rates.

Encouraging borrowing when utilization is low by decreasing interest rates.

Operating independently of user actions by having a fixed interest rate.

## Utilization Rate

Utilization rates are a core input for interest rate models and describes the state of available liquidity relative to total liquidity in a pool, given by:

High utilization implies high borrowing demand which translates to high interest rates for standard interest rate models. Generally speaking, utilization rates should be kept at some optimal range (e.g.<90%) to ensure lenders can withdraw liquidity if they want to do so.

## Interest Rate Models

Silo has multiple interest rate models that react differently to different levels of utilization. Our isolated design enables exceptional interest rate customizability on a per silo per asset basis to suit different market conditions.

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