Understanding Rates

Discover how RateHopper provides more accurate and reliable rate data than protocol websites through historical checkpointing and moving averages.

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The Problem with Current Block Rates

Most DeFi protocol websites (Aave, Morpho, Compound, etc.) display interest rates based on current block data. While this seems accurate, it creates several issues:

Issues with Instant Rates

1. High Volatility

• Rates fluctuate every block (every 2 seconds on Base)

• A single large borrow or withdrawal can spike rates

• Creates misleading snapshots of "current" rates

2. No Historical Context

• You see the rate right now

• No insight into rate trends or stability

• Can't tell if it's a temporary spike or sustained rate

3. Poor Decision Making

• Switching based on a momentary rate spike wastes gas

• Can't predict if the rate will hold

• No way to assess true earning potential

Example:

Aave V3 USDC at 3:45 PM: 5.8% APY
Aave V3 USDC at 3:46 PM: 6.2% APY (+0.4%)
Aave V3 USDC at 3:47 PM: 5.7% APY (-0.5%)

Which rate should you use for decisions?

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How RateHopper is Different

RateHopper solves this by using historical checkpointing and moving averages to give you the real picture.

Our Approach: Historical Checkpointing

What we do:

• Checkpoint rates every minute from smart contracts

• Store historical rate data indefinitely

• Calculate moving averages across multiple timeframes

• Display rates that reflect actual earning potential

Why this matters:

Protocol Website Shows:
USDC Supply APY: 6.8%
(snapshot at current block)

RateHopper Shows:
USDC Supply APY:
- Current: 6.8%
- 1 Hour MA: 5.7%
- 1 Day MA: 5.5%
- 7 Day MA: 5.3%
- 30 Day MA: 5.4%

Reality: The sustainable rate is ~5.4%, 
not the momentary 5.8% spike.

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Moving Averages Explained

What Are Moving Averages?

A moving average (MA) smooths out short-term fluctuations to reveal the true trend. Instead of showing instant rates, we show the average rate over a time period.

Available Timeframes

Timeframe	Use Case	Best For
1 Hour MA	Very recent trends	Quick reaction to major market shifts
1 Day MA	Daily average	Short-term positions, day trading
7 Day MA	Weekly trend	Weekly rebalancing strategies
14 Day MA	Bi-weekly trend	Medium-term analysis
30 Day MA	Monthly average	Most users, realistic expectations
60 Day MA	Two-month trend	Long-term positions
90 Day MA	Quarterly trend	Strategic planning
180 Day MA	Half-year trend	Major trend identification
365 Day MA	Annual trend	Historical baseline

How to Use Moving Averages

For Switching Decisions:

• Use 7-day MA for weekly optimization

• Use 30-day MA for realistic rate comparison

• Ignore momentary spikes unless sustained across MA

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How Protocols Calculate Rates

Understanding how each protocol calculates rates helps you know what you're seeing.

Aave V3

Interest Rate Model:

• Uses a two-slope interest rate curve

• Rates adjust based on utilization

• Compounds interest every block

Formula:

If Utilization ≤ Optimal Utilization:
  Rate = Base Rate + (Utilization / Optimal) × Slope1

If Utilization > Optimal Utilization:
  Rate = Base Rate + Slope1 + (Excess Utilization) × Slope2

Key Points:

• Interest accrues per second

• Has a "kink" at optimal utilization (typically 80-90%)

• Rates spike rapidly above optimal utilization

• Supply APY = Borrow APY × Utilization

Why Their Website Can Be Misleading:

• Shows instant rate at current block

• Doesn't show if you're at a temporary utilization spike

• No historical context for rate stability

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Morpho

Interest Rate Model:

• IRM-agnostic (can use any approved model)

• Most markets use AdaptiveCurveIRM

• Updates interest only on market interactions (not every block)

Borrow APY Formula:

Borrow APY = exp(borrowRate × secondsPerYear) - 1

Where:
- borrowRate = per-second rate from IRM
- secondsPerYear = 31,536,000

Supply APY Formula:

Supply APY = Borrow APY × Utilization × (1 - Fee)

Where:
- Utilization = Total Borrowed / Total Supplied
- Fee = Protocol fee (currently 0% for most markets)

Key Points:

• Uses exponential compounding

• Interest only accrues on market interactions (gas optimization)

• Adaptive curve adjusts rates based on market conditions

• Generally lower rates than Aave due to efficiency

Why Their Website Can Be Misleading:

• Shows the rate at last update, not necessarily "current"

• Adaptive curve can change rapidly

• Doesn't reflect historical stability

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Compound V3 (Comet)

Interest Rate Model:

• Uses a piecewise linear interest rate model

• Has a "kink" point where slope changes

• Simpler than Aave's model

Borrow Rate Formula:

If Utilization ≤ Kink:
  BorrowRate = baseRate + slopeLow × utilization

If Utilization > Kink:
  BorrowRate = baseRate + slopeLow × kink + 
               slopeHigh × (utilization - kink)

Supply Rate Formula:

SupplyRate = BorrowRate × Utilization

Converting to APR:

APR = (Rate / 10^18) × secondsPerYear × 100

Where:
- secondsPerYear = 31,536,000
- Rate is scaled by 10^18

Key Points:

• Updates per second based on utilization

• No protocol fee (all interest goes to suppliers)

• Simpler model = more predictable rates

• Collateral doesn't earn yield (only borrowed asset)

Why Their Website Can Be Misleading:

• Shows instantaneous rate

• Utilization can swing rapidly

• No visibility into rate trends

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RateHopper's Rate Calculation

Our Multi-Layer Approach

Layer 1: Data Collection

Every 60 seconds:
  For each protocol & asset:
    1. Query smart contract
    2. Get current supply/borrow rate
    3. Get utilization
    4. Get market data (TVL, borrowed amount)
    5. Store checkpoint in database

Layer 2: Moving Average Calculation

For each checkpoint:
  Calculate MAs:
    - 1h MA: Average of last 60 checkpoints
    - 1d MA: Average of last 1,440 checkpoints
    - 7d MA: Average of last 10,080 checkpoints
    - 30d MA: Average of last 43,200 checkpoints
    - And so on...

Layer 3: True APY Calculation (for borrow positions)

For protocols where collateral earns yield (Aave, Moonwell, Fluid):
  True APY = Borrow APY - (Collateral Supply APY × Collateral Ratio)
  
For protocols where collateral doesn't earn (Compound V3, Morpho):
  True APY = Borrow APY

Example:
- Borrow USDC at 7.5% APY
- Supply WETH collateral at 3.2% APY
- Collateral ratio: 2x (deposit $2 to borrow $1)
- True APY = 7.5% - (3.2% × 2) = 1.1%

To view all of the historical rates that track, please visit https://app.ratehopper.ai/historical-rates

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Why Moving Averages Matter: Real Example

Let's compare what you see on protocol websites vs. RateHopper:

Scenario: USDC Supply Rate on Aave V3

Protocol Website (Instant Rate):

Monday 9 AM: 5.2%
Monday 3 PM: 6.1% (↑ Large borrow happened)
Monday 9 PM: 5.3% (↓ Borrow repaid)
Tuesday 9 AM: 5.5%
Tuesday 3 PM: 7.8% (↑ Another spike)
Tuesday 9 PM: 5.4%
Wednesday 9 AM: 5.6%

What rate should you expect? 🤔

RateHopper (Moving Averages):

Current Rate: 5.6%
1 Day MA: 5.7%
7 Day MA: 5.4%
30 Day MA: 5.3%

Expected sustainable rate: ~5.3-5.4% ✓
The 7.8% spike was temporary, not sustainable.

Gas Cost Comparison

Following Instant Rates (on Mainnet for example):

Monday 3 PM: Switch to Aave (6.1% > 5.8%)
Gas cost: $2.50

Monday 9 PM: Rate drops to 5.3%
Net benefit: -$2.50 (lost money on gas)

Following Moving Averages:

Check 7D MA: 5.4%
Current protocol 7D MA: 5.2%
Difference: 0.2%

Decision: Not worth switching for 0.2%
Save gas, avoid thrashing

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Reading RateHopper Data

Dashboard Rate Display

When you see rates on RateHopper, here's what each means:

Protocol: Aave V3
Asset: USDC
Rate Type: Supply

Current: 5.6%        ← Right now (for reference)
1h MA: 5.5%          ← Last hour average
1d MA: 5.4%          ← Yesterday's average
7d MA: 5.3%          ← Last week average  ⭐ Use this for decisions
30d MA: 5.2%         ← Last month average ⭐ Best for expectations

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Best Practices for Rate Analysis

✅ Do's

1. Use 7-Day MA for Weekly Decisions

• Most reliable for active management

• Smooths out daily volatility

• Recent enough to be relevant

2. Use 30-Day MA for Realistic Expectations

• Best indicator of sustainable rate

• Great for long-term positions

• Most accurate for ROI calculations

3. Check Multiple Timeframes

Quick Check:
1. Current rate (awareness)
2. 7d MA (decision making)
3. 30d MA (expectations)
4. Trend direction (strategy)

4. Compare MA Across Protocols

Don't compare:
- Aave current (5.6%) vs. Compound current (5.4%)

Do compare:
- Aave 7d MA (5.3%) vs. Compound 7d MA (5.2%)
- Aave 30d MA (5.2%) vs. Compound 30d MA (5.1%)

❌ Don'ts

1. Don't Chase Current Rates

Wrong:
- See 6.2% current on Aave
- Switch immediately
- Rate drops to 5.3% next hour

Right:
- Check 7d MA: 5.3%
- Current 6.2% is a spike
- Don't switch for temporary rate

2. Don't Ignore Trend Direction

Wrong:
- Protocol A: 5.5% (but declining ↘)
- Switch to A because higher

Right:
- Protocol A: 5.5% declining (current > 7d MA > 30d MA)
- Protocol B: 5.3% rising (current < 7d MA < 30d MA)
- Consider B might overtake A soon

3. Don't Use Only Current Rates

Protocol websites show: "5.8% APY"
Reality over 30 days: 5.2% average

Result: You earned 5.2%, not 5.8%
Always check historical averages!

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Advanced: True APY for Borrowers

When you borrow, your true cost depends on whether your collateral earns yield.

Protocols Where Collateral Earns Yield

Aave V3, Moonwell, Fluid:

• Your collateral supplies liquidity

• You earn supply APY on collateral

• True cost = Borrow APY - Collateral APY

Example:

Scenario:
- Borrow 10,000 USDC at 7.5% APY
- Supply 5 ETH (worth $20,000) as collateral
- ETH supply APY: 3.2%
- Collateral ratio: 2x

Calculation:
Borrow cost: 10,000 × 7.5% = $750/year
Collateral earnings: 20,000 × 3.2% = $640/year
Net cost: $750 - $640 = $110/year

True APY: $110 / $10,000 = 1.1% ✓

Protocols Where Collateral Doesn't Earn

Compound V3, Morpho:

• Collateral is locked, not supplied

• No earnings on collateral

• True cost = Borrow APY

Example:

Scenario:
- Borrow 10,000 USDC at 5.2% APY
- Supply 5 ETH (worth $20,000) as collateral
- Collateral ratio: 2x

Calculation:
Borrow cost: 10,000 × 5.2% = $520/year
Collateral earnings: $0/year (collateral doesn't earn)
Net cost: $520/year

True APY: 5.2% (same as borrow APY)

RateHopper Automatically Calculates This

When you view your positions, we show:

Position: Borrow USDC on Aave V3
Borrow APY: 7.5%
Collateral APY: 3.2% (on WETH)
True APY: 1.1% ✓

This is your actual cost after earnings!

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Protocol Comparison Summary

Feature	Aave V3	Morpho	Compound V3
Rate Updates	Every block	On interaction	Every block
Interest Model	Two-slope curve	Adaptive/Custom IRM	Piecewise linear
Compounding	Continuous	On interaction	Continuous
Collateral Yield	✅ Yes	❌ No	❌ No
Rate Volatility	Medium-High	Medium	Medium
Typical Supply APY	4-6%	3-5%	4-5%
Website Shows	Current block	Last update	Current block
RateHopper Shows	Historical MA ✓	Historical MA ✓	Historical MA ✓

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Why RateHopper's Approach is Superior

1. Accurate Expectations

• See the rate you'll actually earn

• Not misled by temporary spikes

• Plan ROI with confidence

2. Better Decisions

• Compare apples to apples (MA vs MA)

• Avoid wasting gas on noise

• Optimize for real gains

3. Trend Awareness

• Know if rates are rising or falling

• Time your entries and exits

• Adapt strategy to market

4. Historical Context

• See how stable a rate has been

• Identify volatility patterns

• Make informed risk assessments

5. True Cost/Benefit

• Automatically calculate collateral earnings

• Show real borrowing cost

• Factor in all variables

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Practical Examples

Example: When to Switch Protocols

Current Position: 100,000 USDC on Compound at 5.2%

New Opportunity: Aave showing 5.9%

Wrong Approach:

5.9% > 5.2% → Switch now!
Gas cost: $5
Benefit: 0.7% on $100k = $700/year

Seems worth it?

RateHopper Analysis:

Compound:
- Current: 5.2%
- 7d MA: 5.2%
- 30d MA: 5.1%
- Assessment: Stable ↔

Aave:
- Current: 5.9%
- 7d MA: 5.3%
- 30d MA: 5.2%
- Assessment: Temporary spike ⚠️

Real Aave rate: ~5.2-5.3% (MA)
Real difference: 0.1-0.2%
Annual benefit: $100-$200
Gas cost: $5
Thrashing risk: High

Decision: Don't switch ✓

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FAQ

Q: Why don't other platforms show moving averages? A: Most platforms prioritize simplicity and real-time data. But this sacrifices accuracy for convenience. We believe you deserve the full picture.

Q: How far back does your historical data go? A: We maintain complete rate history from our launch and continuously checkpoint every minute.

Q: Can I trust moving averages more than current rates? A: Yes! For earning expectations and switching decisions, MAs are far more reliable. Current rates are useful for awareness, but MAs predict what you'll actually earn.

Q: What if current rate is much higher than MA? A: This indicates a temporary spike. It will likely revert to the MA. Don't make decisions based on spikes unless they're sustained across multiple MAs.

Q: Which MA should I use? A:

• Active management: 7-day MA

• Realistic expectations: 30-day MA

• Long-term planning: 90-day MA

• Most users should focus on 7d and 30d MAs.

Q: Do moving averages work for borrow rates too? A: Absolutely! Same principle applies. The MA tells you the sustainable borrow cost, not temporary dips.

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Next Steps

Now that you understand how rates work:

• 📊 View Rate Comparison - Compare protocols with historical MAs

• 🤖 Set Up Automation - Let your agent optimize based on MAs

• 💉 Visit Historical Rates - View all historical rate data

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Ready to see accurate rates? → View Dashboard