Dynamic Interest Rates are borrowing or lending charges that adjust periodically based on predefined market conditions or algorithmic rules. Unlike fixed rates, these rates fluctuate in response to supply and demand for capital. They are designed to reflect current market liquidity and risk assessments. This mechanism helps maintain equilibrium in financial systems.
Context
Dynamic interest rates are a core feature of many decentralized finance (DeFi) lending protocols. A key discussion involves the volatility these rates can introduce for both borrowers and lenders. Monitoring how these rates respond to external market shocks and protocol upgrades will be essential for participants.
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