MoneySwitch
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Factorized Interest Model

The MoneySwitch Factorized Interest Model (FIM) is the mathematical model behind the MoneySwitch protocol which ensures that depositors receive interest they are entitled to. The FIM is important because it allows an indefinite number of lenders to deposit / withdraw from Feeder Pool(s) and the Master Pool and receive interest they are entitled to, all in a low cost / blockchain friendly manner.
Every time a transaction occurs (lending, withdrawal, borrow, repay) in the MoneySwitch protocol, the FIM increases an Interest Factor. This increase represents the amount of interest earned since the last transaction per unit of deposit. A single Interest Factor is required for Master Pool lenders, and a single Interest Factor is required for all Feeder Pool lenders.
By comparing the change in an Interest Factor between when a lender deposits and withdraws assets, we know can calculate how much accumulated interest they are entitled to. This provides a scalable and efficient way of accounting for a large number of lenders and transactions.