Interest

Interest on Polyester is calculated programmatically using a share-based system driven by pool utilization. There are no payout schedules, claim windows, or manual distributions. Interest accrues continuously and is reflected automatically in each user's position.

Both suppliers and borrowers participate in the same interest model, but experience it differently based on how shares are used.

How Interest Is Generated

Each lending pool aggregates supplied assets and makes them available to borrowers. Borrowers pay interest for access to liquidity, and that interest is distributed to suppliers after protocol reserves are accounted for.

Interest rates are dynamic and adjust based on utilization, defined as:

utilization = total borrowed / total supplied

As utilization rises, borrowing becomes more expensive and supplying becomes more attractive. As utilization falls, rates decrease to encourage a higher utilization.

This rate model keeps pools balanced without manual intervention.

How Suppliers Earn Interest

When a user supplies assets to a lending pool, they receive supply shares instead of a fixed balance.

These shares represent their proportional ownership of the pool. As borrowers pay interest, the total value of the pool increases, which causes the share index to rise. The supplier's number of shares does not change, but the value of each share increases over time, entitling them to a larger amount of the underlying asset when they withdraw.

For example:

A user supplies 10 ETH and receives shares representing that deposit
Over time, interest accrues in the pool
Those same shares may later be redeemable for 10.5 ETH

The additional 0.5 ETH represents earned interest.

This approach allows interest to compound efficiently without updating individual balances on every block.

How Borrowers Accrue Interest

When a user borrows from a pool, they receive borrow shares representing their debt.

The value of each borrow share increases as interest accrues, causing total debt to grow over time until it is repaid.

Borrow rates follow the same utilization-driven model as supply rates, with higher utilization resulting in higher borrowing costs and vice versa.

Repaying Borrowed Assets

Borrowed assets can be repaid at any time, either partially or in full.

To repay a loan, visit the Lending page and navigate to the ‘Your Borrows’ tab. This section lists all of a user's active borrow positions. The borrower will select the position to repay and click ‘Repay’ to open the repayment modal.

In the repayment modal, the borrower can choose how much of the borrowed amount they want to repay. They will see how the repayment affects their health factor before they confirm. Repayment funds are taken from the Funding Account.

When a repayment is completed, the corresponding borrow shares are reduced, lowering the borrower's outstanding debt and immediately improving their account’s risk profile.

Protocol Borrow Fee

When interest is repaid, a small portion is allocated as a protocol fee before the remaining interest is distributed to suppliers. Full details on protocol fees can be found on the Lending Fees page.

Claiming Earned Interest

Interest earned from supplying assets accrues over time and must be claimed manually.

To claim interest, visit the Lending page and go to the ‘Your Supplied Assets’ tab. This section shows a supplier's active supply positions along with any accrued interest. Click ‘Claim Interest’ on the relevant asset to open the claim modal.

From the claim modal, suppliers can claim their accumulated interest without withdrawing their supplied principal. This process is separate from removing supply from a lending pool, allowing suppliers to continue earning yield while periodically claiming interest.

Convert A Supply Interest Payout

By default, a supplier's interest is paid out in the same token they are supplying. During the claim flow, they may have the option to convert their interest payout to another token. This does not affect their supplied position.

Why Polyester Uses Shares

The share-based system enables accurate compounding without requiring continuous per-user balance updates, keeping the system gas-efficient at scale. Because all participants are accounted for proportionally, accounting remains consistent across the entire pool and interest distribution is inherently fair. Interest is predictable, transparent, and fully enforced by the protocol: no schedules, manual calculations, or off-chain assumptions required.