How can the lending APR be higher than the borrowing annual rate?

To understand this, first, you need to understand how the interest rate works on Nuo. See this link for info on that. There can be 2 reasons for the lending APR being higher than the borrowing annual rate:

  1. Since the borrowing rate is determined based on the reserve utilization at the time of creation of loan, there would be many loans which would have earlier been taken at a higher premium as compared to what it is now. Due to this, when those loans are repaid, the interest distributed would be high enough to compensate the lenders with the higher APR.
  2. Since the interest amount per loan is fixed at the time of creation of loan and the borrower will be repaying that fixed amount regardless of when the repayment happens, it ends up giving a higher effective rate of return to the lenders. So, even if a loan which was taken for 30 days is paid up(or is auto-liquidated) within 1 day, the interest received towards the reserve pool is going to be for the 30-day period. Hence, the effective lending APR becomes much higher.

So, a comparison of lending APR and borrow rate on Nuo isn't as straight forward as on other platforms.


Did this help answer your question?

thumbs up
thumbs down

Thanks for the feedback! 🙏🏽


Help by drift