# Interest Rate Model

<figure><img src="https://4226119492-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FkWffCRtT7sEuuCxLsLGz%2Fuploads%2FQ7u3RZm9jnWQqGJn7k7N%2FInterest%20Rate%20Model.png?alt=media&#x26;token=8ac3ee78-6569-432e-ac6d-35f66c3acab7" alt=""><figcaption><p>Interest rate model</p></figcaption></figure>

#### For supplier:&#x20;

* When matched: P2P supply APY (Dark Blue)
* When unmatched: Underlying supply APY (Light Blue)

#### For borrower:

* When matched: P2P borrow APY (Purple)
* When unmatched: Underlying borrow APY (Pink)

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**Key Terms**

**P2P cursor**

The P2P cursor is specifically used within Evoq to denote a P2P rate within the range between the underlying supply APY and the underlying borrow APY. It depends on the type of asset and the matching status. It is a number between 0 and 1, indicating its P2P rate at the corresponding percentile between the underlying supply APY and the underlying borrow APY.

**P2P rate**

The P2P rate serves as the reference rate for calculating the P2P supply APY and P2P borrow APY.\
P2P rate = P2P cursor × Underlying borrow APY + (1 - P2P cursor) × Underlying supply APY

**Reserve factor**

The reserve factor refers to the percentage of the APY spread that is allocated to the protocol reserve.

**P2P supply APY**

P2P supply APY = P2P rate - Reserve factor × (P2P rate - Underlying supply APY)

**P2P borrow APY**

P2P borrow APY = P2P rate + Reserve factor × (Underlying borrow APY - P2P rate)
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**Example**

\- Underlying supply APY: 2%\
\- Underlying borrow APY: 12%\
\- P2P cursor: 0.48\
\- P2P rate = 0.48 × 12 + (1 - 0.48) × 2 = 6.8(%)\
\- Reserve factor: 20%\
\- P2P supply APY = 6.8 - 0.2 × (6.8 - 2) = 5.84(%)\
\- P2P borrow APY = 6.8 + 0.2 × (12 - 6.8) = 7.84(%)
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