> ## Documentation Index
> Fetch the complete documentation index at: https://docs.dynamo.finance/llms.txt
> Use this file to discover all available pages before exploring further.

# Interest Rates

> Understand how markets calculate supply and borrow APY from market utilization, why rates change over time, and how to find the best rate for your strategy.

Every lending market sets interest rates dynamically based on supply and demand. There are no fixed terms or negotiated rates. Rates adjust continuously so that the market always clears. Understanding how rates work helps you choose the right markets and time your positions effectively.

## Utilization rate: the engine behind rates

The **utilization rate** is the single most important input for interest rate calculations in [crypto lending](https://dynamo.finance/). It measures how much of a market's supplied liquidity is currently borrowed:

```text theme={null}
Utilization rate (%) = Total borrowed / Total supplied × 100
```

For example, if a USDC market has 10M supplied and 7M borrowed, utilization is 70%.

### How utilization drives rates

| Utilization       | Effect on borrow rate             | Effect on supply APY                      |
| ----------------- | --------------------------------- | ----------------------------------------- |
| Low (\< 40%)      | Falls — borrowing is cheap        | Lower — fewer interest payments to share  |
| Moderate (40–80%) | Steady — balanced market          | Moderate — healthy earnings for suppliers |
| High (> 80%)      | Rises sharply — capital is scarce | Higher — strong earnings for suppliers    |
| Optimal target    | Protocol-defined sweet spot       | Best balance of risk and reward           |

This mechanism is self-correcting. When borrow rates rise, some borrowers repay loans and new suppliers enter, pulling utilization back down. When rates fall, borrowing becomes attractive again and utilization rises.

<Tip>
  High utilization is good for supply APY, but it also means less liquidity is available to withdraw immediately. If you need instant access to your funds, prefer markets with moderate utilization.
</Tip>

## Supply APY and borrow APY

**Supply APY** is what you earn as a lender. It is calculated from the interest borrowers pay, distributed proportionally across all suppliers.

**Borrow APY** is the annualized cost you pay to take out [crypto loans](https://dynamo.finance/). It is usually higher than the supply APY, the difference accounts for protocol fees (if any).

Both rates are expressed as annualized percentages and compound continuously, so your effective return (or cost) compounds over the duration your position is open.

## Variable rates

Markets use **variable interest rates** via the interest rate strategy smart contract. Your rate is not locked at the time you open a position, it adjusts in real time as utilization changes.

<Info>
  There are no fixed-rate products on Dynamo. If you borrow today at 5% APY and utilization increases tomorrow, your borrow rate will rise. Plan accordingly and monitor your open positions.
</Info>

## Finding current rates

You can view live rates across all markets on the **Markets** page:

* **Supply APY** column shows what suppliers are currently earning
* **Borrow APY** column shows what borrowers are currently paying
* **Utilization %** column shows how close each market is to its optimal range

Sort by Supply APY to find the best earning opportunities, or by Borrow APY to find the cheapest borrowing costs.

<Tip>
  For borrowing, lower utilization markets offer cheaper rates. For supplying, higher utilization markets pay better, but watch your ability to withdraw if you need liquidity quickly.
</Tip>