Interest Rates

Overview

The Alto Protocol Interest Rate Controller is a Reactive Rate IRM built to target a specified utilization of available lent liquidity in order to maximize capital efficiency, and is based on Euler’s adaptation of Morpho’s IRM —a modern implementation of the Kashi Lending Engine's IR Controller—.

Alto's Interest Rate Controller is also designed to respond effectively to short-term utilization fluctuations by modulating interest rates more rapidly as utilization increases, thereby, effectively preventing over-utilization and potential liquidity issues.

Implementation:

Within Mint Markets, the utilization is uniquely defined as the utilization of the specified debt ceiling of the market against the amount of USDO minted from the market (minted/debt ceiling). Within Alto’s Isolated Markets, a more traditional implementation is employed of borrowed/lent liquidity.

Formula:

$$R = \left( \left( \mathbb{1}_{\text{err} < 0} \cdot \left(1 - \frac{1}{C} \right) + \mathbb{1}_{\text{err} \ge 0} \cdot (C - 1) \right) \cdot \text{err} + 1 \right) \cdot \min\left( \max\left( r_t \cdot e^{v \cdot \text{err}_{\text{old}} \cdot \Delta t},\ r_{\min} \right),\ r_{\max} \right)$$

Rewards:

Users who pay interest on the Alto Protocol are eligible for oALTO call option incentives each epoch (week).