Rate Hooks
In the previously-described pricing methods, lenders set absolute rates for a set of relative dates.
However, interest rates are constantly fluctuating and lenders may wish for more dynamic or reactive offers in order to avoid suffering an opportunity cost (i.e. lending at a below-market rate).
Rate hooks allow for offers that dynamically update rates based on external information.
Currently, an Aave rate hook is available.
Aave Variable Rate Hook
This is an experimental feature. Lenders should take care to understand the risks when experimenting with price hooks, as the Aave rate may be prone to manipulation.
The Aave hook allows lenders to base their rates on the USDC variable Aave rate, with a multiplication factor and an addition factor.
For example, a lender may specify the following offer:
As you can see in the above, the influence of Aave on the lender's yield curve offer diminishes as maturity increases. This way, short term Aave fluctuations are reflected in short-term loan interest rates, but have less of an impact as expected on long-term rates.
If a borrower in the above example initiates a loan with a due date two months from now, and the current rate to borrow USDC on Aave is 3%, the fixed rate for the loan will be 4.5%.
The calculation of the Aave rate is performed off-chain. Our servers collect samples of the instantaneous Aave borrow rate and then compute medians to get a measure of the fair variable borrow rate, which is more robust against manipulation attacks. In the future we plan to extend this by collecting samples from other lending protocols as well, to get a more realistic and more robust measure.
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