DeFi Lending Interest Rate Models: 2024 Investment Brief

Frequently Asked Questions

01.What is a DeFi lending interest rate model?

A DeFi lending interest rate model is the on-chain formula that sets borrow and supply rates from pool utilisation. Aave and Compound use a kinked two-slope curve that rises gently below an optimal usage point and sharply above it, so the protocol always has an incentive path back toward balanced liquidity without a human rate-setting committee.

02.How does DeFi lending differ from a bank deposit account?

A bank sets deposit and loan rates through a treasury desk and reprices infrequently. DeFi lending pools reprice every block from a transparent, auditable formula tied to real-time pool utilisation, and every position is fully collateralised on-chain rather than backed by fractional reserves or deposit insurance.

03.Who is the target audience for this DeFi lending brief?

This brief is written for family offices, venture principals, and sovereign allocators evaluating decentralised credit markets as a capital-efficient, transparent alternative asset class ahead of committing treasury or fund capital in 2024.