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# Interest rate model of Root Finance

Liquidity risk becomes a pressing issue as the utilization rate escalates, particularly as it approaches the upper limit of 100%. To customize the model for this particularity, the interest rate curve is segmented into two phases centered around an optimal utilization rate, Uoptimal . Prior to reaching Uoptimal the curve’s ascent is gradual; however, beyond this point, it increases significantly.

$$if U <= Uoptimal: Bt = (Ut/ Uoptimal) Rslope1$$

$$if U > Bt = Rslope1 +  (Ut −Uoptimal) /(1−Uoptimal) Rslope2$$

**DEPOSIT RATE**

$$Dt = Ut ∗ Rt ∗ (1 − Rf )$$

**Legend:**

Utilization = U&#x20;

Optimal Utilization = Uoptimal&#x20;

Rate Slope 1 = Rslope1&#x20;

Rate Slope 2 = Rslope2&#x20;

Borrow Rate= Bt

Deposit Rate = Dt&#x20;

Utilisation Rate = Ut&#x20;

Borrow Rate = Bt&#x20;

Reserve Factor = Rf