LogDerivativeRateDynOrigFee_Model.xlsm

The origination fee is a fee charged to liquidity borrowers for borrowing liquidity from the platform. It is only paid when liquidity borrowers borrow liquidity and it is added to their liquidity debt at the opening of a loan or whenever they borrow more liquidity.

Previous versions of the origination fee were based on a fixed model. That is the origination fee was constant. It did not change. This new updated model is based on a dynamic origination fee that increases as the utilization rate of the pool increases to disincentivize liquidity borrowing.

The dynamic origination fee works based on the following formula

if utilRate > minUtilRate

Origination Fee = min {baseFee + min {2^(utilRate - minUtilRate) / feeDivisor, 100%}, 100%}

else

Origination Fee = baseFee

where

baseFee = base origination fee, a constant (e.g. 10 basis points)

utilRate = Current pool utilization rate as an integer (e.g. 85% = 85)

minUtilRate = Utilization rate after which the dynamic origination fee starts being used, a constant

as an integer (e.g. 80% = 80)

feeDivisor = a constant used to divide the exponential number to convert the result to a percentage.

For example,

If this constant is chosen as 16384 an the minUtilRate is 80%, Then the max utilization rate is 95% since

2^(95-80) = 2 ^ 14 = 16384.

Therefore

2^(95-80)/16384 = 100%.

Since the origination fee is capped at 100% any utilization rate above 95% will result in a number greater than 100%, therefore the cap is 95%.