> ## Documentation Index > Fetch the complete documentation index at: https://docs.vanna.finance/llms.txt > Use this file to discover all available pages before exploring further. # Interest Rate Model > How Vanna automatically adjusts borrowing costs based on pool utilization - no governance votes, no fixed rates. ## The Core Idea Vanna does not have a fixed interest rate. Borrowing costs adjust continuously based on a single input: **how much of the pool is currently being borrowed.** When a pool is mostly idle, borrowing is cheap - the protocol wants to attract borrowers. When a pool is nearly fully lent out, borrowing becomes very expensive - the protocol needs to incentivize repayment and keep liquidity available for withdrawals. This happens automatically. No governance votes, no manual updates. The rate responds to pool state in real time. *** ## Utilization - The Only Input Every rate calculation starts with the pool's **utilization ratio**: $$ \text{utilization} = \frac{\text{total borrows}}{\text{total borrows} + \text{available liquidity}} $$ Utilization is a number between 0 and 1. Everything else is a function of this single value. | Utilization | State | | ----------- | --------------------------------------------- | | 0% | Pool is idle - no active borrowing | | 50% | Half the pool is deployed | | 80% | Pool is tightening - rate begins climbing | | 95%+ | Near-fully lent - rate becomes expensive | | 100% | Every asset is borrowed - withdrawals blocked | *** ## The Rate Curve Vanna uses a **smooth polynomial curve** - not a two-segment "kinked" model with a hard breakpoint. The borrow rate accelerates organically as utilization increases, with the steepest acceleration above 90%.
Borrow APR
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Utilization →

Rate stays near-flat below 80% utilization, then accelerates sharply near 90–100%.

The borrow APR is computed as: $$ \text{Borrow APR} = C_3 \times \left( u \cdot C_1 + u^{32} \cdot C_1 + u^{64} \cdot C_2 \right) $$ Where **u** is the utilization ratio (0 to 1) and the constants are: | Coefficient | Value | Role | | ----------- | ----- | ----------------------------------------- | | C₁ | 0.1 | Weight on the linear and 32nd-power terms | | C₂ | 0.3 | Weight on the 64th-power term | | C₃ | 3.5 | Overall scaling multiplier | ### How the three terms work The three terms - `u`, `u^32`, and `u^64` - behave very differently depending on utilization: | Term | At 50% util | At 90% util | At 99% util | | -------------------- | ----------- | ----------- | ----------- | | `u × C₁` (linear) | 0.050 | 0.090 | 0.099 | | `u^32 × C₁` | ≈ 0 | 0.003 | 0.073 | | `u^64 × C₂` | ≈ 0 | 0.001 | 0.158 | | **Total × C₃ = APR** | **\~18%** | **\~33%** | **\~115%** | There is no kink point - no arbitrary breakpoint where the rate suddenly jumps. Acceleration is organic: the high-exponent terms are near zero at low utilization, then rapidly dominate as utilization approaches 100%. ### Approximate rate levels | Utilization | Approx Borrow APR | | ----------- | ----------------- | | 25% | \~9% | | 50% | \~18% | | 75% | \~26% | | 80% | \~28% | | 90% | \~33% | | 95% | \~44% | | 99% | \~115% | *** ## The Self-Correcting Loop This design means the pool naturally stabilizes without external intervention: More borrowers draw from the pool. The borrow rate increases. At high utilization, borrowing costs exceed returns for marginal strategies. Borrowers repay or hold off. Repayments reduce outstanding borrows. The rate decreases and liquidity becomes available again. The pool settles at the utilization where borrow demand and repayment pressure balance - typically in the 70–85% range. *** ## Related * [Lending Pools](/learn/lending-pools) - how utilization is computed from pool state * [vTokens](/learn/vtokens) - how borrow interest flows into LP yield * [Health Factor](/learn/health-factor) - what happens when borrowing costs erode account health * [Rate Model reference](/developers/contracts/rate-model) - the full function interface