As part of ongoing efforts to further improve Clearpool’s interest rate model and enhance the protocol’s economy, Clearpool has introduced an additional parameter — the Credit Risk Premium (CRP).
The interest rate model has been built specifically for Clearpool’s permissionless pools. It is based on a unique formula designed to encourage borrowers to optimally utilize pool liquidity whilst more accurately compensating lenders with risk-adjusted returns. Learn more about the interest rate curve.
The Credit Risk Premium (CRP) is an important upgrade to Clearpool’s interest rate mechanism, following the need to develop a model that would be adaptable for different borrower ratings, giving higher-rated institutions the ability to borrow at more attractive rates.
Based on the Credora rating system, the CRP will be added incrementally to Y0, Ym, and Y1 with the effect of shifting the curve upwards, benefiting higher-rated vs. lower-rated borrowers. Initially, the CRP will be indexed to the ICE BofA US High Yield Index Option-Adjusted Spread (currently at 4.54%), and will be updated every two weeks along with the Oracle voting results.
Below is a demonstration of how Ym will be impacted by the CRP depending on a borrower’s Credora rating. For the current epoch period (24th Apr — 8th May), Ym is set as the rate for “A” rated borrowers, as these were the highest-rated borrowers during the last Oracle voting round. Starting from the next epoch, Ym will be defined as the interest rate for borrowers that fall into the highest “AA” rated bracket. Clearpool Oracles will take this into consideration when voting on interest rate parameters in the next round.
As always, we thank the Poolsiders’ community for your support as we continue to build and deliver a first-in-class protocol driven by the real needs of its users.
Onwards and upwards!
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