Earning Interest
Last updated
Last updated
Understanding the mechanisms through which interest is earned by Lenders can help maximise returns when lending on Kasu. Interest is accrued weekly, based on a Lender’s loan balance at the start of each epoch, and the applicable APY associated with the relevant Tranche within each Lending Strategy.
During the Clearing Period at the end of each epoch, accrued interest is calculated then applied to a Lender’s loan balance, thereby increasing the total loan balance for the start of the next epoch. Accordingly, Lenders can earn compound interest (i.e. earn interest upon interest) every epoch (compounded every 7 days).
Given that interest accrues every epoch, APY represents the total effective interest return over a year assuming a Lender leaves both their principal and earned interest in the Lending Strategy without withdrawing funds. APY therefore takes into account the effect of compound interest (auto-compounding), unlike APR, which only shows simple interest. Therefore, if a Lenders withdraws any funds, their effective interest return may be lower than the stated APY.
A Lender's Loyalty Level also influences total APY. As explained in the, Lenders can boost earnings through bonus interest, paid in $KASU tokens. This assumes all other factors remain constant in terms of no adverse fluctuations related to the $KASU token price affecting a Lender's Loyalty Level.
It's important to note that 10% of interest earned by Lenders is deducted as fees, with half this amount allocated towards Protocol Fee Sharing for Lenders, and the remaining half to the Kasu protocol to fund operations. No fees are applied to Lenders’ bonus interest. Therefore, the APY quoted on the Kasu dApp refers to Gross APY (before fees). Refer to 'Fees Explanation and Gross APY Disclosure' in the for full details
With regards to interest earnings associated with USDC lending, the net interest earnings amount (after fees) is automatically added to each Lender’s loan balance at the beginning of each epoch. With regards to bonus interest paid in $KASU tokens, the amount earned each epoch accumulates and is reflected in the $KASU Locking section of the platform. Lenders can claim their bonus interest ($KASU tokens) at any time, which will be paid at the end of each epoch.
By understanding the mechanics of interest earnings on Kasu, Lenders can better discern their potential returns and make more informed decisions about risk tolerance and lending objectives.