Interest Rate Model
Compound uses a "jump rate" model where interest rates increase linearly with utilization, then spike sharply past a kink point. This incentivizes liquidity — when pools are nearly drained, rates skyrocket to attract new suppliers and discourage borrowing.
📐 Interactive Jump Rate Curve
Borrow Rate
4.50%
Supply Rate
2.03%
Utilization
50%
Zone
Normal
🔬 The Math
BELOW KINK (U ≤ kink)
borrowRate = base + U × slope₁
ABOVE KINK (U > kink)
borrowRate = base + kink×slope₁ + (U−kink)×slope₂
SUPPLY RATE
supplyRate = borrowRate × utilization × (1 − reserveFactor)
The reserve factor (typically 10-25%) is the protocol's cut — it builds a safety reserve from borrower interest. Supply rate is always less than borrow rate because: (1) not all supplied assets are borrowed, and (2) the reserve takes a cut.