Variable Interest Rate (Lending)
An interest rate that fluctuates based on lending pool utilization and market conditions.
What is Variable Interest Rate (Lending)?
Variable interest rates in DeFi lending adjust dynamically with supply and demand in lending pools. For example, Aave’s USDC borrow rate might rise from 5% to 8% as utilization jumps from 60% to 90%. Suppliers benefit from higher rates during peak demand, while borrowers face increased costs. Most DeFi protocols, like Compound, default to variable rates.
In 2025, variable rates for stablecoins average 4–10%, per DefiLlama, with spikes during market rallies. Users monitor rates via aggregators to optimize strategies, though volatility can challenge predictability.
Related Terms
Mark Price
The fair market price used for margin calculations and liquidations to prevent manipulation.
Paper Hands
Traders or investors who sell their digital assets quickly at the first sign of market volatility or negative news, reflecting low risk tolerance.
Morpho
A permissionless decentralized lending protocol on Ethereum and Base that optimizes rates by matching lenders and borrowers peer-to-peer atop pools like Aave and Compound.
Maintenance Margin
The minimum collateral required to keep a leveraged position open.
ZK-Rollup
A ZK-Rollup is a layer-2 scaling solution for Ethereum that processes transactions off-chain and uses zero-knowledge proofs to validate them, posting compact data to the main chain for security and finality.
Perpetual Swap
Also called Perpetual Futures, a derivative contract allowing traders to speculate on digital asset prices without an expiration date.