# Interest Rate Model

Notional uses a two kink interest rate model to determine the pre-fee borrow rate. The pre-fee borrow rate is the interest rate that borrowers have to pay before fees are applied.

Notional's governance sets the following parameters to determine the shape of the interest rate curve:

- Kink1 Interest Rate
- Kink2 Interest Rate
- Max Interest Rate
- Kink1 Utilization Rate
- Kink2 Utilization Rate

The pre-fee borrow rate is a function of the prime money market utilization. A market's utilization is defined as the total amount of funds borrowed divided by the total amount of funds supplied.

The interest paid by the borrowers according to the pre-fee borrow rate is amortized over the total funds supplied.

Last modified 4mo ago