# Interest Rate Model

## Overview

Fervent Finance uses the **Jump Rate Model (JumpRateModelV2)** to determine interest rates for lenders and borrowers. This model was made popular by Compound V2 and creates stable rates under normal conditions, with a sharp increase in interest when utilization gets too high.

## What is Jump Rate Model?

Instead of a single curve, the Jump Rate Model has a **kink point** (also called the "optimal utilization rate"). Before the kink, interest rates rise slowly. After the kink, interest rates increase aggressively to prevent the pool from running out of liquidity.

## Key Parameters

* **Base Rate:** Minimum interest when utilization is zero
* **Multiplier:** Rate slope before the kink
* **Jump Multiplier:** Steeper slope after the kink
* **Kink (Optimal Utilization):** The utilization point where rates "jump"

## Visual Example (Hypothetical)

| Utilization Range | Borrow APR (Example)           |
| ----------------- | ------------------------------ |
| 0% – 80%          | Slowly rising from 2% to \~10% |
| Above 80%         | Jumps sharply up to 20% – 40%+ |

* If utilization is < 80%, the borrow rate increases gradually.
* Above 80%, borrow rates spike to discourage borrowing and attract more supply.

## Supply Rates

Supply APY = (Borrow APY × Utilization Rate × (1 – Reserve Factor))\
So as borrow rates go up, suppliers earn more too.

## Why JumpRateModelV2?

* Prevents liquidity depletion
* Keeps rates stable during normal demand
* Reacts quickly when the pool gets risky
* Widely used and battle-tested in Compound V2

## Summary of Benefits

* **Dynamic & market-driven**
* **Self-protecting during high stress**
* **Fair returns for lenders**
* **Automated and transparent**


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