Interest Rate Model

This section describes the specifics of the interest rate model. It is based on the battle-tested Aave stable rate strategy. At this time, Voyage only supports fixed interest, charged linearly.

Rate Strategy

Only fixed stable rates are supported at the moment due to the following:

1. Yield derived from assets purchased through loans may form a significant portion of many borrowers’ income. Stable rates are far more favourable for financial planning;

2. Loans are partially insured by the tranche model and margin requirement. Therefore, Voyage does not face the same degree of volatility risk as lending protocols that support open-ended loans.

As predictability is key (due to the short-term nature of loans and the existence of the dual-tranche mechanism) for the Protocol's early days, Voyage will not be implementing a rate rebalancing strategy in the first product release. The team may consider implementing a rebalancing mechanism in the near to mid-term future.

Rate Model

The rate model closely follows that of existing loan protocols. Each reserve will have an optimal utilisation rate, $U_{optimal}$, which will be decided by governance, from time to time. The factors affecting this are described in the Risk Framework.

The formal definition is:

$​ R^{t}{s} = \begin{cases} R_{b},\ &\ if\ U \leq U_{optimal} \\ R_{b} + \frac{U}{U_{optimal}}R_{slope1},\ &\ if\ U \gt U_{optimal} \end{cases}$

$R_{b}$ is the base interest rate, decided by governance and determined in accordance with the prevailing risk framework guidelines. It is not feasible to obtain a base rate by averaging the rates of other protocols as Voyage is a novel protocol.

Below $U_{optimal}$, liquidity outstrips demand for loans. Therefore, interest rates are kept constant to encourage more borrowing. When demand starts to outstrip supply, interest rates will ramp up and increase at an accelerated pace ($R_{slope1}$).