The core reason Alpha Homora drives utilization more efficiently than the standard model is in the protocol’s innovative borrow model - where fixed and variable interest rates are combined.
The borrow interest rate that the borrowers (or leveraged yield farmers) pay upon borrowing ETH to yield farm is according to the utilization rate (% of BNB lent that is being borrowed out).
The model follow a triple-slope interest rate curve:
At 0-80% utilization rate, interest rate goes from 0% up linearly to 20%
At 80-90% utilization rate, interest rate will be fixed at 20%
At 90-100% utilization rate, interest rate goes up linearly to 200%
Alpha Homora differentiates itself as it creates an optimal range instead of a single optimal point seen in the incumbent model. This means that the borrowing interest rate is fixed at 20% when utilization rate is between 80-90%. This fixed borrowing interest rate then translates to a fixed 15% lending interest rate lenders receive (20% goes to reserves). This means that instead of just a single point, lenders and borrowers have this range that they can be in to be at an optimal position to lend or borrow.
Our triple-slope model’s optimal range is between 80-90% utilization, with borrowing interest fixed at 20%, because it gives space for lenders to withdraw supplied BNB while simultaneously efficiently utilizing their supplied BNB.
The model starts at 0% (instead of the standard 2-6% in the incumbent model) because when utilization rate is 0%, and there’s no demand to borrow, borrowing cost should be 0% as well. This way, the cost increases alongside demand.
The interest rate model’s slope becomes steeper after 90% utilization to discourage a utilization rate that’s too high and prevent a situation where BNB lenders can’t withdraw BNB due to full-utilization.
Our triple-slope curve model is one of the core reasons Alpha Homora has a higher utilization rate than the majority of the lending market. Alpha Homora’s consistently high utilization rate will help accrue more fees, which will then in turn enable ALPHA stakers to collect maximal value on their tokens.
Lending interest rate is derived from the borrow interest rate. Specifically, 90% of the borrow interest rate is then become the lending interest rate, as 20% goes to reserves, distributing back to ALPHA stakers for securing Alpha ecosystem.