Silofinance
Silofinance links variable borrowing costs to market utilization
Silofinance calculates variable borrowing interest in Silo V3 from a kinked curve tied to each market's utilization. Above the minimum-rate zone, variable borrowing rates rise with utilization until the configured cap applies. Total loan interest also depends on the outstanding balance and elapsed time. A minimum-rate segment holds its rate only within its configured utilization range. A fixed-rate market uses a separate configuration, which changes how future utilization affects borrowing costs.
Continuous compounding can increase a Silo V3 repayment balance even when the borrowing rate itself stays unchanged.
Borrowed funds, supplied funds, and market utilization
Market utilization connects the funds that lenders supply with the funds that borrowers use, giving the rate curve its liquidity input. Utilization equals total borrowed divided by total supplied for the loan asset. The numerator measures outstanding borrowing; the denominator measures supplied capital. Collateral supports the loan but is a different asset within the paired market. Risk isolation keeps these lending relationships market-specific. Consequently, matching asset names across markets does not establish matching utilization or borrowing costs. The relevant curve belongs to the selected market and its configuration.
How does the rate curve change as utilization rises?
A variable Silo V3 curve moves from a minimum-rate region through a linear middle region to a steeper high-utilization region, subject to the configured rate cap. Its segments respond differently to utilization.
The regions on the variable curve
The Dynamic Kink Interest Rate Model uses the parameters
u_low
and
u_crit
to separate its utilization regions. Their configured positions determine where the pricing response changes. The regions describe how a single market prices its loan asset as available supply changes.
| Curve region | Borrowing-rate behavior | Applicable utilization |
|---|---|---|
| Low utilization | Minimum rate remains fixed |
Below
u_low
|
| Normal utilization | Rate increases linearly |
Between
u_low
and
u_crit
|
| High utilization | Rate increases more aggressively, within its cap |
Above
u_crit
|
The utilization thresholds govern pricing, not liquidation eligibility. Moving above
u_crit
puts a variable market into its steeper rate region. It does not, by itself, signal a borrower for liquidation. That event depends on the position's debt value relative to its collateral value and the applicable liquidation threshold.
A minimum-rate zone versus a fixed-rate market
A minimum rate within a utilization band
A minimum-rate zone can provide predictable pricing while utilization stays inside that zone and the relevant settings remain unchanged. The Silo V3 documentation illustrates a 4% borrowing rate between 0% and 50% utilization. The curve can charge more after utilization moves into a rising region, even though the earlier reading showed no rate movement.
A fixed-rate configuration across utilization levels
A fixed-rate market uses a predefined static borrowing rate across utilization levels under that configuration. Higher utilization alone does not move its rate onto a steeper segment. This provides a different basis for estimating interest than the floor on a variable curve. The predictability belongs to the active configuration; the protocol also supports an administrator switching a market to a fixed-rate model.
Continuous compounding and the outstanding loan
Silo V3 accrues interest through continuous compounding. Borrowers owe interest on the loan amount at the applicable rate. Accrued interest increases the underlying amount required for repayment.
The current borrowing rate describes the pace of accrual at the current market state. A total-interest estimate also needs the outstanding balance and the period over which interest accrues. With a variable curve, utilization can move during that period, changing the applicable rate. Applying the opening rate to the entire period assumes that the rate remains unchanged. That assumption can fail when the market crosses a utilization boundary or its managed settings change. A rate reading and a repayment amount therefore describe different quantities: one describes accrual, and the other describes an amount of the borrowed asset.
A fixed positive borrowing rate still produces an increasing repayment balance through compounding. The predictable input is the rate; the length of the borrowing period remains another cost input. Comparing two quoted rates without the same borrowing period does not establish which loan would accrue less interest on the same starting balance.
Rate caps at high utilization
Silo V3 bounds borrowing rates at high utilization, limiting the upper rate response when available liquidity becomes scarce. The exact maximum belongs to the selected curve, so a cap in one market does not establish another market's maximum. Above the high-utilization threshold, the steeper segment operates within that bound. A cap constrains pricing; it does not determine when other borrowers repay or when lenders supply additional funds. Those actions change liquidity separately from the limit that the model places on its borrowing rate.
Can managed settings change a borrowing-cost estimate?
In optionally managed Silo V3 markets, administrators can adjust rate-curve parameters within a cap. A cost estimate can change when those adjustments affect the applicable borrowing rate. Permitted changes include making the slope steeper or flatter and shifting the equilibrium utilization range.
Utilization identifies a point on the curve active at that time. If managed parameters change, the same utilization can correspond to a different borrowing rate. Projecting costs from a previous curve can therefore miss the impact of a new slope or utilization range. Liquidity-driven changes move the market along a curve; parameter changes alter the curve itself.
A managed interest-rate curve controls pricing parameters inside a market. Managed vault allocation performs a separate function by directing deposited capital among whitelisted markets.
Rate comparisons beside collateral and available liquidity
Borrowing rates affect debt growth, while maximum loan-to-value and liquidation thresholds govern different limits on the collateralized position. Loan-to-value (LTV) compares current loan value with current collateral value. Maximum LTV limits borrowing capacity; the liquidation threshold determines when a position becomes eligible for liquidation. Accrued interest can raise LTV even when collateral prices remain unchanged. The distance to a collateral limit therefore changes as debt accumulates, without requiring a change in the borrowing-rate curve.
Available liquidity also explains the incentive behind variable pricing. As utilization rises beyond the minimum-rate zone, higher borrowing costs encourage repayment and attract supplied capital, within the rate cap. These responses can ease scarcity, but their timing depends on actual repayments and deposits. Suppliers face a withdrawal constraint when liquidity is fully utilized. A higher rate does not itself return borrowed tokens to the pool. A loan can continue accruing interest while its market remains short of withdrawable liquidity.
Silofinance FAQ
Where can I view a Silo V3 market's full borrowing-rate curve?
The Yield section of each Silo V3 market in the Silo lending app displays its full rate curve, current utilization, and borrow and supply rates. The curve shows how pricing relates to utilization; the displayed borrowing rate identifies the current point. This information belongs to the selected market, so another market's curve may differ.
Can a partial repayment reduce my exposure to a higher borrowing rate?
A partial repayment reduces the outstanding loan balance that continues to accrue interest at the applicable rate. Silo V3 permits partial or full repayment at any time. Repaying part of a loan changes the balance exposed to interest; it does not lock the remaining debt to a fixed rate.
Do managed vault deposits provide borrowing capacity in Silo V3?
A managed vault deposit does not provide borrowing capacity in Silo V3. Managed vaults allocate supplied tokens across whitelisted markets for depositors who want borrower-funded interest. Borrowing requires a collateral deposit into an appropriate isolated market, subject to that market's permitted borrowing direction and maximum LTV.
Which token records the interest-bearing debt on a Silo V3 loan?
A non-transferable ERC-20 debt token represents a Silo V3 borrowing obligation. Repaying the loan requires its outstanding balance in the borrowed asset, including accrued interest. Repayment burns the corresponding debt tokens as the loan balance clears.
Is a liquidation fee the same charge as borrowing interest?
A liquidation fee is separate from the interest that accrues on a Silo V3 loan. Borrowing interest depends on the loan amount and applicable rate; a liquidation fee belongs to a liquidation event. The liquidation mechanism determines how that fee is distributed.
Must I settle accrued interest before withdrawing all my collateral?
Withdrawing all collateral requires full repayment of the Silo V3 loan, including its accrued interest. The opening loan amount can be lower than the amount required at settlement because interest increases the underlying obligation over time.