Interest Rate Primitives

Definition ∞ Interest rate primitives are fundamental, composable components within decentralized finance protocols that enable the calculation and application of interest rates. These are the basic building blocks that define how borrowing costs and lending yields are determined and adjusted on a blockchain. They allow for the creation of sophisticated financial products. These components are crucial for transparent and automated financial operations.
Context ∞ Interest rate primitives are essential for the operation of decentralized finance money markets and various yield-generating protocols, allowing users to earn returns on deposited digital assets or incur costs for borrowing. Their design, parameter adjustments, and security are frequent subjects of governance proposals and economic analysis within decentralized autonomous organization communities. The efficiency of these primitives significantly influences capital allocation in DeFi.