Pay-As-You-Earn (PAYE) Model

Stella Introduces the PAYE Model to Replace the Utilization-Based Interest Rate Model (IRM)
The prevalent interest rate model (IRM) is what limits users from generating real DeFi yields.
In practice, IRM creates misaligned incentives and imposes such a win-loss relationship between lenders and borrowers.
  • Interest Rate Model (IRM) is disconnected from the yields borrowers can earn in the market, the quoted interest rate from the model is not reflected in the actual yield that the leveragoors can earn in the market.
    • Lenders enjoy higher yields at the cost of borrowers who pay high interest rates on borrowed funds, pressuring borrowers to generate even higher yields to justify these interest payments.
  • Large position sizes of whales and institutions can spike interest rates due to high utilization, capping leveragoors' yields, resulting in negative APY and reduced incentives.
Negative APY due to high utilization
With DeFi is NOT going to have 3-digit or 4-digit yield opportunities anymore, Stella’s 0% cost to borrow and Pay-As-You-Earn (PAYE) model are the ultimate solutions for the current and future DeFi market.
Stella has replaced the utilization-based IRM with the PAYE Graph - a curve that determines the proportion of leveragoors' generated yield allocated to lenders. This aligns the incentives of both leveragoors and lenders, facilitating fair and genuine DeFi yields for all participants. This advancement sets a new fundamental standard for the next-level DeFi innovation by introducing innovative methods of leveraging and lending.
Yield Share Based VS IRM Based Net Yield

PAYE Model In-Action

Leveragoors will not experience any borrowing costs, irrespective of the asset's utilization rate. They will bear cost only when they generate yields, in accordance with Stella's PAYE Graph, wherein a yield share portion is taken from the generated yields.
These yields cut from leveragoors are shared with lenders, enhancing capital efficiency while putting no maximum cap on lending APY. It’s a collective incentive alignment between leveragoors and lenders alike.
How the Yield Share is applied before sharing to the leveragoor and lender