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When you supply an asset, borrowers of that asset pay interest, and that interest accrues to suppliers. The rate you see quoted on a market is the sum of the legs described below, and it moves continuously.

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Where the base rate comes from

The underlying rate is set by utilization: the proportion of the market’s supplied assets that are currently borrowed.
  • Low utilization means abundant supply relative to demand, so the rate is low.
  • As utilization rises, the rate rises to attract more supply and discourage further borrowing.
  • Past a kink point, the rate rises much more steeply, which is what keeps a market from being borrowed to exhaustion.
Nobody sets this rate administratively. It is a function of the market’s own state, recalculated continuously, which is why a supply rate quoted this morning may be materially different this afternoon.

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The legs behind a displayed rate

A market’s total rate is made up of one or two legs, depending on whether a rewards program is running. The platform shows you the breakdown. No active rewards program. The total rate is the liquidity-layer rate alone: pure borrower-paid interest. Streaming rewards. The total is the liquidity-layer rate plus a rewards rate, and both legs compound into what you hold.
Static rewards. The total rate is the rewards rate alone. In this configuration the liquidity-layer yield is settled through a separate periodic rebalance rather than compounding into your holder rate, so the platform shows that leg as context but excludes it from the total. If you add the two figures yourself, you will overstate your return. That exclusion is labeled in the rate breakdown wherever it applies. It is the one case where the legs shown do not sum to the total, and it is intentional.

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Rewards are not the same as interest

Where a rate includes a rewards leg, treat it differently from borrower-paid interest:
  • Rewards are funded by a program with a defined budget and end date. Borrower-paid interest continues as long as there are borrowers.
  • A program can end or be resized, and the total rate falls accordingly.
  • Rewards may be paid in a different asset from the one you supplied, which introduces price exposure you did not choose by supplying.
A high headline rate that is mostly rewards is a materially different proposition from the same rate made of interest.

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APR versus APY

Where the platform shows an annual percentage yield (APY), it reflects compounding. Where it shows a rate (APR), it is the instantaneous annualized rate at that moment. Neither is a forecast: both are the current rate extended over a year on the assumption that nothing changes, and something always changes.

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What a displayed rate is not

It is not a fixed term. There is no lock-in and no guaranteed rate. You are exposed to the rate as it moves for as long as you hold the position. It is not a return net of risk. The rate compensates you for lending; it does not compensate you for the possibility of losing principal to a protocol failure, nor for a price fall in the asset you supplied. A rate quoted in an asset means your return is denominated in that asset: 5% on an asset that falls 20% is a loss. If you hold both supply and borrow positions, the figure that matters for your book is your net rate. See Net APY.