Pool Interest Rates

Pool-Level APY Dynamics

The aggregate variable rate earned by the pool is:

$$\text{IR}_{\text{Pool}} = W_{\text{Aave}}\;\text{IR}_{\text{SOFR}} + \sum_{n=1}^{N} W_{n}\,\text{IR}_{n}$$

where

$$\begin{aligned} W_{\text{Aave}} &: \text{ idle liquidity in Aave (earns }\text{IR}_{\text{SOFR}}\text{)} \\[2pt] W_{n} &: \text{ weight of borrower }n \\ &: \bigl(\sum_{n} W_{n}=1-W_{\text{Aave}}\bigr) \end{aligned}$$

Cash-flows are then split between the senior and junior tranches:

$$W_{\text{USD3}}\;\text{IR}_{\text{USD3}} + W_{\text{sUSD3}}\;\text{IR}_{\text{sUSD3}} = \text{IR}_{\text{Pool}},\qquad W_{\text{USD3}} = 0.85,\; W_{\text{sUSD3}} = 0.15$$

USD3 and sUSD3 APY

$$\text{IR}_{\text{USD3}} = \frac{\text{IR}_{\text{Pool}} - W_{\text{sUSD3}}\;\text{IR}_{\text{sUSD3}}} {W_{\text{USD3}}}$$

USD3 receives interest first and benefits from a real-time cash reserve that enables most redemptions to clear instantly.

$$\text{IR}_{\text{sUSD3}} = \text{IR}_{\text{USD3}} + \frac{\bigl(\text{Excess Spread} - \text{Reserve Accrual}\bigr)} {W_{\text{sUSD3}}}$$

sUSD3 earns every remaining basis-point of spread after senior distributions and reserve top-ups, but it also absorbs first losses.

Borrow APY

The all-in annual percentage yield a borrower pays, combining the utilization-driven base rate, the borrower’s 3CA risk spread, and any time-dependent late-penalty charges. It updates block-by-block, so borrowers always see the exact cost of capital on their outstanding balance.

$$\text{IR}_{n} = \text{IR}_{\text{Base}}(U) + \text{IR}_{\text{DRP},n} + \mathbf{1}_{\text{late},n}\;\text{IR}_{\text{LP}}$$

$$\text{where}\; \begin{aligned} \text{IR}_{\text{Base}}(U) &: \text{utilisation curve} \\[2pt] \text{IR}_{\text{DRP},n} &: \text{default-risk premium} \\[2pt] \text{IR}_{\text{LP}} &: \text{late-penalty rate} \end{aligned}$$

Base Interest-Rate

A variable rate indexed to pool utilization. This mechanism balances liquidity: cheap when the pool is under-used, expensive when liquidity is scarce.

$$\text{IR}_{\text{Base}}(U)= \begin{cases} r_{\text{SOFR}} + \Delta_{\min}, & U \le U_{t},\\[6pt] r_{\text{SOFR}} + \Delta_{\min} + C\,(U-U_{t}), & U > U_{t}. \end{cases}$$

$$\text{where}\; \begin{aligned} r_{\text{SOFR}} &: \text{live SOFR proxy} \\[2pt] \Delta_{\min} &: \text{minimum spread} \\[2pt] U &: \text{current utilisation} \\[2pt] U_{t} &: \text{target utilisation} \\[2pt] C &: \text{slope beyond }U_{t} \end{aligned}$$

Default-Credit-Risk Premium (3CA Spread)

A borrower-specific add-on derived from 3CA’s probability-of-default model. It compensates the pool for expected credit losses alongside a yield spread premium.

$$\text{IR}_{\text{DRP},n} = \text{LGD}\,\times\text{PD}_{n}\,(1+\text{Buffer})$$

$$\text{where}\; \begin{aligned} \text{PD}_{n} &: \text{prob. of default (3CA)} \\[2pt] \text{LGD} &: \text{loss-given-default} \\[2pt] \text{Buffer} &: \text{model margin} \end{aligned}$$

Late-Penalty Component

An additional APR activated after the grace period expires. Accruing on outstanding principal until the account is current or declared in default, it discourages strategic non-payment and funds the reserve to offset higher servicing costs associated with delinquent loans.

$$\mathbf{1}_{\text{late},n}\,\text{IR}_{\text{LP}}$$

$$\text{where}\; \text{IR}_{\text{LP}}:\ \text{rate applied after grace period}$$