Interest Rates
Interest rates apply within the Primary Lending Facility as follows:
- Borrowers are charged interest on their loans.
- Lenders are paid interest collected from Borrowers according to their proportion of the Primary Capital Pool.
The Primary Lending Platform automatically adjusts the interest rate charged to Borrowers so that a balance occurs to economically incentivize Borrowers’ and Lenders’ participation in the platform.
- When there is high Borrower demand, the interest rate they are charged will be algorithmically increased. This will attract more Lenders to the platform – who will receive a share of the greater interest charges collected from Borrowers.
- When there is low Borrower demand, the interest rate they are charged will be algorithmically decreased. This will attract more Borrowers to the platform.
The term Utilization Rate is used to describe demand from Borrowers. A low Utilization Rate will tend to decrease interest rates and a high Utilization Rate will tend to increase interest rates. Each stablecoin market offered by the Primary Lending Platform will have its own interest rate dynamic according to its Utilization Rate.
As a result of this dynamic of automatically balancing interest rates, there are no deterministic fixed interest rates. The market determines interest rates. This allows the Fringe Finance Platform to remain competitive in the crypto economy – since deterministic fixed interest rates would cause the platform to swing into and out of being competitive in relation to other crypto platforms.
Note, however, it is likely that Lenders will enjoy higher interest rates for their stablecoin assets using the Fringe Finance Platform as compared to other platforms. This is because the Fringe Finance platform can be a predominant lender for many speculative collateral assets that do not have other well-established lending markets.