Interest Rate Model

Nomial uses a two-slope interest rate model similar to Aave v3.

The protocol uses a two-slope interest rate model similar to Aave v3 to determine LP returns. See an example of a two-slope interest rate on the Aave USDC pool page.

Components

• Base rate: Applies to all utilization levels

• Rate1: Scales linearly up to optimal utilization

• Rate2: Scales linearly above optimal utilization

• Penalty rate: Additional rate for overdue loans

Calculation

Interest rates adjust based on pool utilization:

• Low utilization: Base rate + (utilization × Rate1)

• High utilization: Base rate + (optimal × Rate1) + ((utilization - optimal) × Rate2)

• Overdue loans: Regular interest + Penalty rate