Interest Rate & Utilization Metrics

Pike employs dynamic interest rate and utilization metrics to balance supply and demand within the lending market, incentivize liquidity and manage risk effectively.

Supply and Borrow APY

Each asset in Pike has its own Supply Annual Percentage Yield (Supply APY) and Borrow Annual Percentage Yield (Borrow APY). These rates fluctuate based on market conditions and the utilization of the asset’s pool.

• Supply APY: This is the yield earned by users who supply assets to the protocol. It is influenced by the demand for borrowing that asset.

• Borrow APY: The interest rate paid by users who borrow assets from the protocol over the course of a year. It increases as the utilization rate of the asset pool rises.

Net APY Metrics

The user’s Net APY provides an overall view of a user’s profitability on the platform, considering both supply and borrow activities. It reflects the balance between the yield earned on supplied assets and the interest paid on borrowed assets.

• User Supply APY: This metric aggregates the yields from the user’s supplied assets on the market, weighted by the amount supplied, to show the effective APY across a user’s supply portfolio for the market.

• User Borrow APY: Similar to the supply side, this metric calculates the effective APY for all borrowed assets, reflecting the average cost of borrowing across a user’s positions.

• Net APY: Combining the supply and borrow sides, the User Net APY indicates whether a user’s overall position is net positive or negative, helping them assess their profitability at a glance.

Utilization Rate

The Utilization Rate is a key metric that shows how much of an asset’s available liquidity is currently being borrowed. It directly influences interest rates within the interest rate model.

Utilization Rate = Total Borrowed / Total Supplied

A higher utilization rate typically increases borrowing costs while boosting returns for suppliers, encouraging liquidity flow into the protocol. By understanding this metric, users can anticipate interest rate changes and optimize their strategies.

• High Utilization: Leads to higher Borrow APY to attract more supply and stabilize the market.

• Low Utilization: Reduces Borrow APY to encourage borrowing activity.