Assesses interest rate model updates in decentralised lending protocols, indicating potential improvements in liquidity utilization.
We characterise the equilibrium between borrowers and lenders in a decentralised lending protocol (DLP). Using this equilibrium characterisation, we develop a methodology for a DLP to update the interest rate model in order to move the proportion of liquidity being borrowed towards a desired level of utilization. Finally, we run experiments to assess the performance of the proposed methodology when the DLP does not know the supply and demand curves, and when there are changes in the environment.
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Cohen et al. (2026) studied this question.
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