Loan interest rate—why is it adjusted in three stages?
Most lending/borrowing agreements use a two-stage design often referred to as a “kink-point” model. Before the fund pool utilization reaches a certain threshold, the interest rate increases slowly. Once the utilization exceeds the threshold, the rate rises sharply—serving as a warning to borrowers that the fund pool is running out.
In the Sui ecosystem, the Scallop protocol uses a three-stage interest rate curve. It splits the entire utilization range into three phases.
In the lower-utilization range, the protocol designs a low interest rate that is more favorable to encouraging borrowing—even reaching an incentivized state. As utilization rises into the mid-range, the interest rate begins to increase gradually. Only in the high-utilization range does the interest rate jump quickly in the same way as most two-stage models.
The purpose of this design is to provide incentives when utilization is still low, guiding capital out to be borrowed earlier rather than waiting until utilization is already relatively high to make adjustments. At the same time, it preserves the “brake” mechanism when utilization is high—keeping interest rates rising rapidly to remind borrowers that funds are becoming scarce.
Most lending/borrowing agreements use a two-stage design often referred to as a “kink-point” model. Before the fund pool utilization reaches a certain threshold, the interest rate increases slowly. Once the utilization exceeds the threshold, the rate rises sharply—serving as a warning to borrowers that the fund pool is running out.
In the Sui ecosystem, the Scallop protocol uses a three-stage interest rate curve. It splits the entire utilization range into three phases.
In the lower-utilization range, the protocol designs a low interest rate that is more favorable to encouraging borrowing—even reaching an incentivized state. As utilization rises into the mid-range, the interest rate begins to increase gradually. Only in the high-utilization range does the interest rate jump quickly in the same way as most two-stage models.
The purpose of this design is to provide incentives when utilization is still low, guiding capital out to be borrowed earlier rather than waiting until utilization is already relatively high to make adjustments. At the same time, it preserves the “brake” mechanism when utilization is high—keeping interest rates rising rapidly to remind borrowers that funds are becoming scarce.
