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Interest Rate Models

Interest rates are how Euler balances lenders who want yield with borrowers who want liquidity. Borrowers pay interest on outstanding debt, lenders receive yield from that interest, and each vault uses its configured Interest Rate Model (IRM) to decide the current borrow rate.

The most important input is usually utilization: how much of the supplied liquidity is currently borrowed. When utilization rises, liquidity becomes scarcer, so borrowing normally becomes more expensive.

The common pattern

Vault stateSupply, borrows, utilization, and the current point in time.
Interest Rate ModelThe vault's configured rule for turning state into a borrow rate.
Market ratesBorrow cost, lender yield, and any configured vault-level fee.

IRM types

Euler supports several IRM styles. The diagrams below use utilization on the horizontal axis and borrow rate on the vertical axis, except the cyclical model, which changes by time instead of utilization.

Linear KinkGentle until the kink, steep after it

Rates climb steadily while a vault has normal spare liquidity. After the kink, the slope gets much steeper to discourage over-utilization.

Linear KinkyA smoother curve with aggressive tail risk pricing

Rates still respond to utilization, but the post-kink region bends upward. The shape parameter controls how hard the rate accelerates near full utilization.

Adaptive CurveThe curve moves when utilization stays off target

The vault has a target utilization. If utilization stays above target, the model moves rates up over time. If it stays below target, rates drift down within configured bounds.

Fixed Cyclical BinaryTwo fixed rates that alternate on a schedule

This model is time-based rather than utilization-based. It switches between a primary rate and a secondary rate for special market designs.

The comparison above summarizes the supported model shapes. For constructor parameters, units, and deployment checks, use Interest-rate models.

Fee structure

Euler does not currently charge protocol fees. In April 2026, Fee Flow was turned off and Euler protocol fees were set to 0% across live and future deployments. The DAO can reintroduce protocol fees through future governance. See Reduce Euler Protocol Fees to Zero.

Curators and vault governors can still configure vault-level fees where supported by the vault. For EVK vaults, the interestFee parameter can allocate a portion of borrower interest to the configured fee receiver.

EVK interest fees are denominated in vault shares. This means that unwithdrawn curator fees continue to participate in changes to the vault's asset-per-share value.

Rate dynamics in practice

For utilization-responsive IRMs, higher borrowing demand can produce the following feedback loop:

  1. Utilization increases
  2. Interest rates rise
  3. Borrowers face higher costs
  4. Lenders earn higher yields
  5. If a vault-level fee is configured, the fee receiver accrues more fees

The loop can continue until supply, borrowing, or market conditions establish a new equilibrium. Time-based models such as Fixed Cyclical Binary do not derive their rate from utilization.

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