What is an interest rate model and how does it work in relation to compound ?
An interest rate model is a mathematical model used to determine the interest rate of a loan or other financial instrument.
In relation to Compound, an interest rate model is used to determine the interest rates for borrowers and lenders. The Compound protocol uses an algorithmic market-based approach to set interest rates. This means that the interest rates are determined by supply and demand, with the supply being the amount of tokens available for borrowing and lending, and the demand being the amount of tokens that users are willing to borrow or lend at any given time.
The Compound protocol adjusts the interest rates in real-time based on these factors, allowing users to get better returns on their investments.
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