Interest Rate
Percentage cost to borrow or return earned from lending capital
Definition
Interest Rate means percentage cost to borrow or return earned from lending capital. In DeFi, the concept matters because it affects risk, return, liquidity, governance, or execution assumptions.
Interest Rate is a DeFi term used to understand percentage cost to borrow or return earned from lending capital.
Example
If a lending market pays 4% annually on USDC deposits, that is the deposit interest rate.
How it works
In practice, the concept shows up like this: If a lending market pays 4% annually on USDC deposits, that is the deposit interest rate.
Why it matters
Interest Rate matters because small misunderstandings can turn into bad pricing, liquidation, governance, custody, or smart-contract risk.
What to check
Separate sustainable revenue from temporary incentives and ask who pays the yield. The main checks are: Variable rate changes; Utilization spikes; Borrow liquidation risk.
Risks to Consider
- Variable rate changes
- Utilization spikes
- Borrow liquidation risk
Common Questions
What does Interest Rate mean in DeFi?
Interest Rate means percentage cost to borrow or return earned from lending capital.
How is Interest Rate used in practice?
A practical example: If a lending market pays 4% annually on USDC deposits, that is the deposit interest rate.
What should I check before relying on Interest Rate?
Separate sustainable revenue from temporary incentives and ask who pays the yield. The main checks are: Variable rate changes; Utilization spikes; Borrow liquidation risk.