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Interest Rate Models (IRMs)

Interest rate models (IRMs) are a core component of risk management and capital efficiency in Euler vaults. They determine how borrowing and supplying rates respond to changes in utilization. Euler currently supports two main types of IRMs, each with distinct governance and operational requirements.

1. Kink IRM (Linear Kink Model)

  • Description: The Kink IRM is a classic model where the interest rate increases linearly with utilization up to a "kink" point, after which it rises more steeply. This model is highly configurable and can be tailored to current market conditions.
  • Governance: Requires active management. Curators or risk managers must monitor market conditions and redeploy new Kink IRMs as needed, swapping them into governed vaults to maintain optimal risk/reward profiles.
  • Deployment: New Kink IRMs can be deployed using the Creator UI. The model parameters (base rate, kink rate, max rate, kink utilization, etc.) are set at deployment.
  • Suitability: Not suitable for ungoverned or immutable vaults (such as Edge vaults) due to the need for ongoing updates.

2. Adaptive Curve IRM (Morpho-Style)

  • Description: The Adaptive Curve IRM is based on the Morpho adaptive curve model, with some parameter tweaks for Euler. It automatically adjusts the interest rate at the target utilization based on time spent above or below the target, reducing the need for manual intervention.
  • Governance: Designed for minimal intervention. A preset of Adaptive Curve IRMs has been deployed and their addresses are available in the irmRegistry contract.
  • Selection: In the Edge Creator UI, you can select from the available Adaptive Curve IRMs in the registry. These are suitable for ungoverned or immutable vaults, as they adapt to market conditions without requiring redeployment.
  • Suitability: Recommended for Edge vaults and other ungoverned/immutable deployments.