Dual Slope Borrowing Rate Model Implementation and Recommendations
Summary
As mentioned in this forum post, after comprehensive analysis of JLP utilization patterns, market dynamics, and liquidity risk metrics, we are proposing a significant update to Jupiter’s borrowing rate mechanism. Our research indicates that transitioning from the current single linear rate curve to a dual slope (jump rate) model will provide substantial improvements in liquidity efficiency and risk management. This approach has been proven effective in established DeFi lending protocols and can be particularly valuable for perpetual futures markets.
Current challenges of the existing model
The existing single linear rate curve has served as a foundation for Jupiter’s borrowing mechanism, but as the protocol grows and market conditions evolve, several limitations have become apparent.
The uniform rate sensitivity regardless of utilization levels makes it challenging to maintain optimal liquidity conditions. This can lead to periods of inefficient capital usage or excessive utilization, potentially impacting trading conditions and JLP stability.
To address these challenges, we are proposing a dual slope model that implements two distinct rate curves with a kink at 80% utilization. The first slope provides gentle rate increases up to the target utilization, ensuring attractive borrowing costs during normal market conditions. Above the target, a steeper slope creates strong economic incentives to maintain healthy liquidity buffers.
Parameter Methodology and Rationale
Our parameter calibration employs a dynamic risk premium framework designed to optimize protocol performance across varying market conditions. The model synthesizes historical market data through carefully tuned multipliers that scale with asset volatility, creating a responsive yet stable rate environment. At its core, the framework targets risk-adjusted returns through implied Sharpe ratios that scale progressively with utilization, ensuring liquidity providers receive appropriate compensation during periods of market stress while maintaining attractive rates during normal conditions. A minimum borrowing rate of 10% annually has been implemented across all assets, aligning with major centralized venues and established high/low ranges in the perpetual futures market.
The system’s core mechanics leverage proprietary utilization factors that dynamically adjust to market conditions, with specific enhancements for different asset classes. For traditional cryptoassets, the framework employs more aggressive scaling factors, while stable assets see modified treatment through specialized multipliers that reflect their unique risk characteristics. This approach allows traders to naturally size their positions based on their own return expectations against our implied risk-adjusted return thresholds, creating an efficient market-driven equilibrium.
The framework’s dual slope methodology creates distinct behavioral zones that help optimize capital efficiency. Primary metrics are derived from a complex interplay of volatility measures and utilization patterns, enabling organic responses to changing market conditions while maintaining protocol stability. By targeting specific risk-adjusted return thresholds through our premium structure, the system creates natural arbitrage opportunities when returns deviate from equilibrium levels, helping maintain balanced market dynamics. This comprehensive approach ensures the protocol can adapt to market evolution while providing appropriate incentive structures for all participants, with rates computed continuously to maintain precision in execution.
Understanding the Parameters
The dual slope model uses four key parameters to manage borrowing rates and utilization:
Target Rate: The optimal borrowing rate when utilization is at the target level (80%). This rate is designed to be attractive enough for traders while adequately compensating JLP providers. It represents the equilibrium point where borrowing demand and liquidity provision are well-balanced.
Max Rate: The highest borrowing rate applied when utilization reaches 100%. This serves as a circuit breaker during high utilization periods, strongly incentivizing traders to reduce positions or attracting new liquidity. The significant increase from target to max rate helps prevent utilization from staying too high for extended periods.
Lower Slope: The rate of increase in borrowing costs from 0% to 80% utilization. A gentler slope here keeps rates reasonable during normal market conditions while still providing meaningful yields to JLP providers.
Upper Slope: The rate of increase from 80% to 100% utilization. The steeper slope creates strong economic pressure to maintain utilization below the target level, helping protect protocol liquidity during stress periods.
Recommended Parameters according to the model
| Asset | Min Rate APR | Target Rate APR | Max Rate APR | Lower Slope APR | Upper Slope APR |
|---|---|---|---|---|---|
| SOL | 10% | 57.35% | 229.42% | 59.19% | 860.32% |
| ETH | 10% | 23.00% | 91.98% | 16.25% | 344.94% |
| BTC | 10% | 20.10% | 80.40% | 12.62% | 301.49% |
| USDC | 10% | 10% | 21.31% | 0% | 56.56% |
| USDT | 10% | 10% | 10% | 0% | 0% |
Asset-Specific Considerations
SOL: As the most volatile asset, SOL has the highest target rate (76.83%) and max rate (230.49%). The significant upper slope (768.31%) provides strong protection against over-utilization, while the lower slope (96.04%) maintains reasonable costs during normal conditions.
ETH and BTC: These major assets show similar parameter patterns, reflecting their more moderate volatility profiles. Their target rates (~27-30%) and max rates (~80-90%) balance trading accessibility with proper risk management.
Stablecoins: USDC and USDT have significantly lower rates across all parameters due to their reduced volatility. The gentle lower slopes (5.89% and 1.25%) keep borrowing costs competitive, while the upper slopes still provide adequate utilization control.
Recommended Parameters to implement after smoothing
| Asset | Min Rate APR | Target Rate APR | Max Rate APR | Lower Slope APR | Upper Slope APR |
|---|---|---|---|---|---|
| SOL | 10% | 60% | 230% | 62.50% | 850% |
| ETH | 10% | 23% | 90% | 16.25% | 335% |
| BTC | 10% | 20% | 80% | 12.50% | 300% |
| USDC | 10% | 10% | 25% | 0% | 75% |
| USDT | 10% | 10% | 10% | 0% | 0% |
Calculation Examples
SOL Example:
Input Parameters:
* Min Rate: 10%
* Target Rate: 60%
* Max Rate: 230%
* Target Utilization: 80%
* Slope Calculations: Lower Slope = (60% - 10%) / 80% = 62.5%
* Upper Slope = (230% - 60%) / 20% = 860%
Sample Scenarios:
1. Low Utilization (40%)
1. Borrow Rate = 10% + (62.5% × 40%) = 10% + 25% = 35%
2. High Utilization (85%)
1. Borrow Rate = 60% + [860% × (85% - 80%)] = 60% + (860% × 5%) = 60% + 43% = 103%
Expected Impact
The new model is designed to create a more efficient and stable market environment for all participants. Traders will benefit from more predictable borrowing costs during normal market conditions, while still maintaining access to leverage when needed. For JLP providers, the model offers improved compensation mechanics that better reflect the risks of liquidity provision.
From a protocol perspective, we expect to see reduced utilization volatility and more efficient capital usage. The model’s dynamic nature should lead to more stable fee generation while improving overall market efficiency.
Public Community Dashboard
You can view our analytics dashboard to monitor real-time borrowing rate recommendations, utilization metrics, and underlying model calculations at hex.tech.
The dashboard showcases Jupiter’s dual slope borrowing rate model implementation and market performance through several key visualizations. The primary components include a real-time view of the borrowing rate curves across different assets, displaying how rates scale with utilization and the distinct characteristics of each asset class. Supporting data tables provide current parameter readings and key metrics that drive the model’s behavior, such as historical utilization and asset volatility.