The interest rate determined and executed directly on a blockchain protocol, typically within decentralized lending and borrowing platforms. These rates are algorithmically adjusted based on supply and demand for specific digital assets within the protocol. Unlike traditional finance, these rates are transparent, immutable, and automatically enforced by smart contracts. They represent the cost of borrowing or the yield for lending digital assets within a decentralized environment.
Context
On-chain interest rates are a central component of decentralized finance news, reflecting the economic activity and liquidity dynamics within protocols. Fluctuations in these rates can significantly impact the profitability of lending and borrowing strategies. Regulatory bodies are beginning to examine how these algorithmic rates interact with traditional financial regulations and consumer protections.
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