# Borrowing maths

## Dynamic Borrowing Rates

Meow Finance implements a **dynamic interest rate model** based on the **utilization ratio** of pawUSDC.

* **Utilization Spike Threshold**: Interest rates dynamically scale once utilization > 80%.
* **Base Borrowing Rate**: 10% APY
* **Borrowing Interest Formula**:

```
Borrowing Interest Formula:

Borrowing APY = Vault Yield (APY) / 3

```

Borrowing interest is calculated per vault based on the yield it's generating.

* **LTV (Loan-to-Value)**: 70% (default, configurable per vault)
* **Liquidation Threshold**: 71% LTV (configurable per vault)

### Token Mechanics – `pawUSDC`

When users deposit USDC into the lending vault, they receive pawUSDC — our DeFi native LST of USDC representing their share of the pool. This token acts as a **receipt** and is needed to withdraw USDC plus interest.

The `pawUSDC` is optimized for yield-bearing vaults.

***

### Example

> **User A deposits**: $100 in an NFT Time-lock Vault generating 50% APY.\
> **Borrowed**: $60 against their vault position (60% LTV).

**Borrowing Interest APY**:

```
50 (Vault Yield) / 3 = 16.66% ( Borrowing APY )
```

**Distribution of Borrowing Interest**:

* 70% → pawUSDC = \~11.66%
* 15% → Meow Finance = \~2.5%
* 15% → Back to the Vault = \~2.5%

***

## Liquidation Fees

If User A reaches **71% LTV**, the vault initiates liquidation. Let's assume liquidation leaves **30% margin**.

**Liquidation Fee Distribution** (of the 30% recovered):

* 70% → pawUSDC = 18%
* 15% → Vault = 6%
* 15% → Meow Finance = 6%

***

## 💸 Fee Breakdown

| Source                 | Distribution                     |
| ---------------------- | -------------------------------- |
| **Borrowing Interest** | 70% pawUSDC, 15% Meow, 15% Vault |
| **Liquidation Margin** | 60% pawUSDC 20% Meow, 20% Vault  |

***

### 🔁 Vault Behavior Summary

* USDC deposited into vault earns points + yield
* Lenders receive **`pawUSDC`** the DeFi native LST of USDC representing their share
* Borrowers pay dynamic interest based on vault performance
* Liquidations redistribute leftover collateral to pawUSDC, vaults, and Meow Finance
* `pawUSDC` required to withdraw deposited USDC + earned yield

***


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