Overview
Notional charges hourly interest on borrowed USDC using a utilization-based rate model. Interest is settled every hour alongside perpetual funding payments.Pool Utilization
Borrowing costs adjust dynamically based on pool utilization to balance liquidity provider yields with system stability. Utilization is calculated as the ratio of total borrowed USDC to total available assets in the pool. For each user, the borrowed amount represents the shortfall between their margin requirements and available USDC. The protocol enforces an 80% maximum utilization cap. Withdrawals and new borrows that would exceed this threshold are rejected.Interest Rate Formula
The annual interest rate combines a fixed 4% base rate with a utilization-dependent premium. The premium curve P(U) follows a two-phase model:- Phase 1 (U ≤ 65%): Premium = 0.04 × (U / 0.65)
- Phase 2 (65% < U < 80%): Premium = 0.04 + 3.467 × (U - 0.65)
Two-Phase Design
Gradual phase (0-65% utilization):- Premium increases linearly from 0% to 4%
- Total rates: 4% to 8% APR
- Encourages borrowing at low utilization
- Premium increases linearly from 4% to 56%
- Total rates: 8% to 60% APR
- Discourages excessive borrowing
- Encourages new LP deposits
Rate Curve Examples
| Utilization | Premium | Total Annual Rate | Hourly Rate |
|---|---|---|---|
| 0% | 0% | 4% | 0.000456% |
| 32.5% | 2% | 6% | 0.000685% |
| 65% | 4% | 8% | 0.000913% |
| 70% | 21.3% | 25.3% | 0.00289% |
| 75% | 38.7% | 42.7% | 0.00487% |
| 80% | 56% | 60% | 0.00685% |
Hourly Settlement
Interest is calculated and applied every hour at XX:00:00 UTC. The hourly settlement event includes:- Interest charges for each borrower (based on borrowed amount, hourly rate, and risk multiplier)
- Interest earnings for each depositor (distributed pro-rata based on their share of the pool)
- Current utilization rate, borrow rate, and deposit rate
Borrower Interest
Calculation
For each borrower, hourly interest is calculated as: borrowed amount × hourly rate × risk multiplier. The hourly rate is derived from the annual rate by dividing by 8760 (hours per year).Risk Multiplier
Accounts with higher risk pay higher rates based on their cross margin ratio (account value / maintenance margin):- Cross margin ratio > 5: 1.0x (low risk)
- Cross margin ratio > 2: 1.2x (medium risk)
- Cross margin ratio > 1.5: 1.5x (high risk)
- Cross margin ratio ≤ 1.5: 2.0x (very high risk)
Example
An account with 10,000 USDC borrowed at 75% pool utilization and a cross margin ratio of 3.5 (medium risk) would pay:- Hourly rate: 0.00057 (from 5% APR)
- Risk multiplier: 1.2x
- Interest: 10,000 × 0.00057 × 1.2 = 164/day, effective ~50% APR with multiplier)
Depositor Yield
Calculation
Total interest collected from borrowers is distributed proportionally to depositors based on their share of the pool, after deducting a 10% protocol fee. Each depositor’s share equals: (depositor balance / total deposits) × total interest × 0.9Example
With a pool of 100,000 USDC total deposits and 75,000 USDC borrowed (75% utilization):- Total interest collected: 75,000 × 0.00057 = $42.75/hour
- Protocol fee (10%): $4.28
- Distributed to depositors: $38.47/hour
- 38.47 × 0.05 = 46/day)
Funding Payments
Perpetual positions also pay or receive funding every hour alongside interest charges. Funding payments are calculated as: |position size| × mark price × funding rate. The funding rate from HyperLiquid is applied directly per funding interval (no division). Funding settles hourly at XX:00:00 UTC.Example
A long position of 1.5 BTC at 14.25 per funding interval. Payment Direction:- Long positions: Pay when funding rate is positive, receive when negative
- Short positions: Receive when funding rate is positive, pay when negative