Borrowing

When users borrow assets on Hana Finance, they pay an ongoing interest rate, much like real world loans. This interest is automatically subtracted from their deposited collateral.

The platform's interest rate for each asset is a function of the utilisation rate of the asset. This is done for the following reason:

1. To fairly compensate lenders more for assets that are high in demand, as less so for assets that are not, creating a dynamic market for both lenders and borrowers.

2. As an asset approaches 100% utilisation, liquidity risk materialises itself. An increase or decrease in interest rate maintains healthy liquidity on the platform for lenders and borrowers to enter and exit positions.

Interest Rate Model (Borrowers)

$$if\ U_{t} \leq U_{optimal}\ :R_{t}=R_{0}+\frac{U_{t}}{U_{optimal}}*R_{slope1}$$

$$if\ U_{t}>U_{optimal}\ :\ R_{t}=R_{0}+R_{slope1}+\frac{U_{t}-U_{optimal}}{1-U_{optimal}}*R_{slope2}$$

Parameters

Parameter	Definition
Ut	Current utilisation rate of asset
Uoptimal	Optimal utilisation rate of asset. Outlined in market parameters
Rt	Current borrow interest rate of asset
Ro	Base Variable Borrow Rate. Outlined in market parameters
Rslope1	Interest rate gradient variable 1. Outlined in market parameters
Rslope2	Interest rate gradient variable 2. Outlined in market parameters

What does this mean?

An optimal utilisation rate is set by the team for each asset based on our risk assessments. It is configured in such a way that:

• If the current rate of utilisation is less than the optimal utilisation rate, interest rate gradually increases as utilisation increases.

• If the current rate of utilisation is more than or equal to the optimal utilisation rate, interest rate sharply increases as utilisation increases.

This is done to ensure that utilisation rates on our platform keep a good balance between borrowing demand and available liquidity