Interest Rates
Polaris uses two complementary interest rates to manage pAsset markets. Together, they help maintain the target price of each pAsset while protecting the overall health of the collateral system.
The Peg Stability Rate is the primary interest rate paid by pAsset minters. It adjusts automatically according to minting and redemption activity and helps keep pAssets around their target price.
The Protocol Safety Rate is an always-active market-internal redistribution mechanism. It moves value from higher-leverage positions to lower-leverage or collateral-only positions, helping reward positions that improve market collateral health.
Although the protocol’s interest rates determine the nominal cost of minting, the effective cost can be lower. Indeed, minters can receive protocol-generated value as pETH, while lower-leverage and collateral-only positions can benefit from more favorable rate flows.
| Property | Peg Stability Rate | Protocol Safety Rate |
|---|---|---|
| Purpose | Primary minting cost for pAsset minters | Protects aggregate collateral health |
| When active | Always | Always |
| Responds to | Minting vs redemption activity | Position leverage and aggregate collateral health |
| Interest | Paid to Earn Vault and vePOLAR | Directly redistributed towards lower-leverage positions |
Peg Stability Rate
The Peg Stability Rate is the standard minting cost paid by users who mint pAssets.
Interest paid through the Peg Stability Rate becomes the primary yield source for that pAsset market and is distributed to the pAsset’s Earn Vault and vePOLAR stakers, according to the market’s configured flow allocation assigned.
A unique feature of the Peg Stability Rate is that it is not altered by governance or manual intervention. Instead, it adjusts automatically based on minting and redemption activity taking place inside the protocol.
When a pAsset trades above its target price, arbitrage opportunities naturally encourage new minting. As net minting activity increases, the Peg Stability Rate responds to this signal by gradually decreasing toward its minimum base fee of 0.05%, reducing the cost of creating new pAssets and allowing supply to expand more quickly.
Vice versa, when a pAsset trades below its target price, arbitrage opportunities encourage redemptions instead. As net redemption activity increases, the Peg Stability Rate gradually increases, making new minting less attractive while helping the circulating supply contract.
Protocol Safety Rate
The Protocol Safety Rate is designed to protect the overall collateral health of a pAsset market.
It is active at all times and affects positions according to their relative leverage. Positions with higher leverage pay the rate, while lower-leverage or collateral-only positions receive it.
In normal market conditions this effect may be small. When collateral health weakens, it can become more significant, making it profitable for healthier positions to enter or remain in the market while making high-leverage positions more expensive to maintain.
The goal is to improve the market’s overall collateral health by increasing the cost of higher leverage while rewarding more conservative collateralization.
This encourages the market to return toward stronger overall collateralization without requiring liquidations or governance intervention.
Unlike the Peg Stability Rate, the Protocol Safety Rate is not protocol revenue. Every payment made through the mechanism remains inside the same pAsset market and is redistributed directly between participants.