Dynamic IRM with PI Controller
Last updated
Last updated
The dynamic IRM with PI controller adjusts interest rates aggressively to target an optimal utilization range.
It consists of four utilization ranges:
Very low utilization range
Low utilization
Optimal utilization
Critical utilization
The Silo IRM employs rLin at the Very Low Utilization range, with low interest that is relatively inelastic to changes in utilization within this range.
This keeps interest rate lows to encourage more borrowing activity.
The Silo IRM employs rp (part with klow) at the Low Utilization range, with low to moderate interest that is elastic to changes to utilization within this range.
Very Low to Low Utilization
Since borrowing activity is present at more meaningful levels, rp enforces a slightly steeper interest rate creep to ensure lenders are adequately compensated.
Optimal to Low Utilization
Since borrowing activity has decreased from optimal, rp will rapidly bring down borrowing costs to encourage more borrowing activity and return utilization to optimal ranges.
The Silo IRM employs ri at the Optimal Utilization range, with moderate interest that is inelastic to changes in utilization within this range.
This is the desired utilization range for any given market.
As utilization deviates to Low Utilization or Critical Utilization, the interest rate model will change to push utilization back to the Optimal Utilization range.
The IRM for Critical Utilization is explored in more detail in Soaring Interest Rates
The Silo IRM employs rp (part with kcrit) at the critical range, with high interest that is elastic to both changes to utilization and time spent above this range.
Critical Utilization is a range of excess, with borrowing demand exceeding ideal supply, meaning lenders may be unable to withdraw their deposit until more deposits are added or loans are repaid.
The introduction of a time multiplier paired with intrinsically high interest rates due to utilization-interest elasticity will cause soaring interest rates. This encourages more lenders to deposit or borrowers to repay their loans to return utilization to the Optimal Range.
