Pendle price

Random Morpho Note on How Interest Rate Changes via the Adaptive Interest Rate Mechanism: Morpho tries to aim for 90% utilization. Then how is the interest rate controlled? There are some interesting implications to the above. Because there is an attempt to always keep utilization at 90%, the main rate you need to really concern yourself with is the interest rate at 90% U. This is also known as the "rate at target utilization." If supply and borrows don't fly around like crazy, this acts as a pivot point where you can expect rates to fluctuate about in a small way. Not in the chart video below, but the curve is actually hard-coded where if the utilization is 0, then the rate will be 1/4 * the interest rate @ 90% U. If the utilization is 100%, then it maximally will be 4 * the interest rate @ 90% U. So, as we know that the rate at 90% U is the pivot point, what Morpho is really doing is controlling the interest rate, up or down, at this 90%. But also, we can't let the curve move up or down violently. It slowly and progressively moves to allow the market to think and decide what interest rate is the fair price. So, in a sense, Morpho is algorithmically trying to find the market rate that the market likes. (You can see this in the animation where the curve slowly moves down at first as the utilization is below 90% twice.) The further Utiliazation is away from 90%, the faster it moves up or down. If you expect utilization to be fairly stable, the rate at 90% U is something you can reference. Of course, the exception here is that you have clowns consistently trying to cash out or move the supply and borrows, resulting in noise, but that's a different story. This is why you kinda need to know your counterparty and their behavior, IMO. Why is 90% utilization so important? The easy answer is that you want, as much as possible, for your money to be put to work. If the market has too many lenders and too few borrowers, then the interest paid by borrowers is shared among a lot of lenders, which means lower earnings. In the context of the curve, the reasoning is a bit different. You may notice that the interest rate is not a smooth, up-only line but two lines: one gentler and the other that is steeper. This is to ensure that the maximal amount of the lenders' money is put to work while ensuring that borrowers aren’t taking too much money out (else they pay high interest). Therefore, with your money nearly maximally at work as the adaptive interest rate curve finds the best price for it, as we can assume that the interest rate quoted is what the market is interested in. Problems However, it's very risky because if you have collateral that is poor in quality, the 90% utilization drains the higher quality loan token (usually USDC) out very fast and thus makes it difficult to cash out. In the event of a collateral token collapse, lenders can be adversely selected and cannot exit. Implications Anyway, as a current Morpho market enjoyooor, what does this all mean? Every time you see a market with nice rates, the question is almost always: "Will the great APY I see today still be here tomorrow, or will it vanish?" A rule of thumb is that if the borrowers are here for the long haul (my guess atm are Pendle loopers where they typicall stick around till expiry, but check the data), and lenders that are generally large treasuries or whales seeking to park their funds without an aggressive yield farm mandate, you will have markets with relatively steadier rates. If you have “nervous” markets, where collateral usually has a lot of price risk (non-stable tokens in general) or has suppliers that are usually aggressive in yield optimization, then you will have unstable rates. End In any case, this interest rate mechanism is pretty interesting. Of course, given the age of this algo, there are definitely better ones out there. Maybe I’ll get to them some other day. 🙂