# Interest Rate Model / Utilization

## Understanding Interest in Beracana

Beracana's lending protocol operates on a dynamic interest rate model to optimize capital efficiency and ensure sustainable borrowing and lending dynamics. This model directly impacts how APY (Annual Percentage Yield) is calculated for borrowers and lenders within the ecosystem. Below is a detailed breakdown of the various components:

#### **Farm APY Calculation**

Farm APY is derived from the base APR (Annual Percentage Rate) of the farmed assets:

* **Farm APY** = **APR × 5** (compounded conversion)\
  \
  `\text{Earning APY} = \text{APR} \times 5`<br>
* This represents the maximum APY that can be earned, also referred to as **Earning APY**.

#### **Borrow APY**

* The **Borrow APY** is the rate paid by borrowers on their borrowed funds.
* This interest is distributed to lenders as their reward for providing liquidity.

#### **Leverage Borrow APY**

When leveraging borrowed funds, users incur an interest cost relative to their leverage ratio:

* **Leverage Borrow APY:**\
  \
  `\text{Leverage Borrow APY} = \left(\frac{\text{Borrowed Amount}}{\text{Deposited Amount}}\right) \times \text{Borrow APY}`<br>
* This determines the effective interest rate a user pays when using leverage.

#### **Earning APY**

* This is the APY users receive **without leverage** and is equal to the APY of the vault.

#### **Leverage Earning APY**

When users deposit assets and borrow additional funds to maximize their exposure, they earn interest on both their deposit and the borrowed amount:

* **Leverage Earning APY:**\
  \
  `\text{Leverage Earning APY} = \left(\frac{\text{Deposited Amount} + \text{Borrowed Amount}}{\text{Deposited Amount}}\right) \times \text{Earning APY}`<br>
* This represents the total yield a leveraged user can earn.

#### **Effective APY**

Effective APY is the net return after accounting for borrowing costs. It is calculated as:\
\
`\text{Effective APY} = \text{Leverage Earning APY} - \text{Leverage Borrow APY}`<br>

* Expanded formula: \
  \
  `\text{Effective APY} = \frac{(\text{Deposited Amount} + \text{Borrowed Amount}) \times \text{Earning APY} - \text{Borrowed Amount} \times \text{Borrow APY}}{\text{Deposited Amount}}`<br>
* This determines the final yield a user receives after deducting borrowing costs.

### **Utilization & Interest Rate Model**

Beracana employs a tiered interest rate system based on the **utilization rate** of available liquidity. The utilization rate represents the percentage of supplied liquidity currently being borrowed.

#### **BERA/wBERA Bank Interest Rate Tiers**

| Utilization Rate | Borrow APY |
| ---------------- | ---------- |
| 0% - 80%         | 140%       |
| 80% - 90%        | 200%       |
| 90% - 100%       | 350%       |

<figure><img src="https://1826136369-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FJxG1AbM84pBXop9AErdS%2Fuploads%2FuPpAJni3T4Zf5Vd4avcy%2FScreenshot%202025-07-16%20at%208.18.04%E2%80%AFPM.png?alt=media&#x26;token=c4ba55d9-7ce8-4d77-82ac-b8504605199e" alt=""><figcaption></figcaption></figure>

#### **NECT Bank Interest Rate Tiers**

| Utilization Rate | Borrow APY |
| ---------------- | ---------- |
| 0% - 80%         | 8%         |
| 80% - 90%        | 15%        |
| 90% - 100%       | 50%        |

<figure><img src="https://1826136369-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FJxG1AbM84pBXop9AErdS%2Fuploads%2F2yqwKzzPtzOPc9mPe7Jg%2FScreenshot%202025-07-16%20at%208.18.16%E2%80%AFPM.png?alt=media&#x26;token=f9228a6b-76ed-4a4e-8b9a-65c370eeafda" alt=""><figcaption></figcaption></figure>

* When utilization is low, borrowing rates remain attractive to encourage borrowing.
* As utilization increases, rates adjust upwards to incentivize lenders to supply more liquidity and balance demand.
* When utilization nears 100%, the **APY spikes** to prevent excessive borrowing and ensure capital availability for withdrawals.

### **Governance & Future Adjustments**

Following this interest rate model change, Beracana will introduce a **public governance mechanism** where all **Ethereal BERA holders** can vote on future interest rate adjustments.