The Dials: Rates, Caps & the Flywheel

We just traced the money - where LP yield comes from and how the borrow rate bridges it. Now let's open the control panel and see the few dials that steer the whole system, almost on their own.

The remarkable thing about Own's economics is how little anyone has to touch. Set a handful of dials sensibly and the market tunes itself. Let's meet the three that matter.

Dial one: the kink

Recall the borrow rate from the last chapter - around 7%, comfortably below perp funding. That rate isn't fixed. It moves with utilization - how full the loan book is, meaning how much of the borrowable collateral has actually been borrowed.

The rate follows a two-slope curve that bends at a point called the kink, set at roughly 80% utilization. Picture it like this:

  borrow rate
      ^
 ~80% |                                   /  <- steep slope
      |                                  /      (the brake)
      |                                 /
      |                                /
      |                              .'
  ~7% |..........................  .'  <- the kink (~80% full)
      |              _____....----'
  ~5% |____....----''
      |
      +----------------------------------------> utilization
      0%            cheap & filling      80%   100%

Read it left to right:

• Below the kink (the gentle slope): borrowing is cheap - roughly 5 to 7%. Cheap money invites borrowers, so the book fills up. Each extra dollar borrowed nudges the rate, and therefore LP income, up just a little.
• At the kink (~80%, the target): the book is nearly full - LP capital is working hard - yet borrowing is still cheap enough (~7%) to keep traders in the trade. This is the sweet spot: the most LP yield Own can pay without scaring borrowers off.
• Above the kink (the steep slope): the rate spikes hard, toward ~80%. Borrowing suddenly becomes uneconomic, so borrowers repay and unwind, which pulls utilization back down below the kink. It's an automatic brake.

Here's why this one dial is so powerful: it sets both yield and supply at the same time.

Yield rises naturally as the book fills toward the kink - more borrowed means more interest paid to LPs. And supply self-corrects: if utilization ever pushes past the kink, the rate spike does two things at once. It pushes borrowers to repay (freeing up room), and it lifts the vault's yield, which pulls in fresh LP deposits. Either response restores breathing room. Nobody adjusts anything.

In one line: put the kink where borrowing is still cheaper than perp funding (~7% vs ~13%), run the book up toward it, and the curve does the rest - paying LPs the most it safely can while keeping their exits open.

Dial two: the caps (one ladder per collateral)

The kink governs the lending book. A second set of dials governs safety - and each collateral type gets its own settings, because each carries a different risk. Cash can't crash; ETH and Bitcoin can.

For every collateral, Own sets three knobs:

• The backing cap - the most tokens that can ever be minted against that collateral. The hard safety ceiling.
• The operating level - where Own actually runs day to day, deliberately below the cap so there's room to grow and to absorb a price rally.
• The borrow limit - how large the lending book against that collateral is allowed to get.

The settings form a risk ladder, loosest for the safest collateral:

USDC (cash, can't drop) gets the highest caps. cbBTC (Bitcoin - volatile, but less than ETH) sits in the middle. wstETH (staked ETH, the most volatile) is tightest and demands the most backing. The riskier the collateral, the more conservative every setting.

And there's one golden rule that holds the whole risk model together: never raise the backing cap to chase demand. The cap is the safety limit, not a growth lever. When demand bumps against it, the fix is to attract more collateral - more deposits raise the ceiling automatically - not to loosen the brake. (All figures are per $1M of collateral and scale up as the protocol grows.)

Dial three: the flywheel

Put the kink and the caps together and you get a loop that feeds itself - the flywheel:

        More LP collateral deposited
                  |
                  v
        Bigger lending capacity --------> More traders can loop/borrow
                  ^                                  |
                  |                                  v
        Higher LP yield <------------ More borrow interest + spread earned
                  ^                                  |
                  |                                  v
        LPs attracted by the yield <---- Utilization rises -> yield rises
                  |
                  +--------------> (back to top - it compounds)

The self-balancing trick is to tie LP rewards to how full the book is. When borrowing demand runs hot, utilization climbs toward the kink, LP yield rises, that yield pulls in more collateral, and the fresh collateral reopens capacity for still more borrowing. The system draws in exactly the collateral it needs, exactly when it needs it - and each turn of the wheel is a little bigger than the last.

That's the engine room. Next we'll see the one party we haven't paid yet: the protocol itself, and how the trading spread gets split.

What just happened

• The borrow rate isn't flat - it rides a two-slope curve that bends at the kink (~80% utilization).
• Below the kink borrowing is cheap and the book fills; at the kink LP yield is highest while borrowing stays attractive; above it the rate spikes as an automatic brake.
• That single dial sets both LP yield and loan supply, and supply self-corrects without anyone intervening.
• Each collateral has its own risk ladder - backing cap, operating level, borrow limit - loosest for USDC, tightest for wstETH.
• The golden rule: never loosen the backing cap to chase demand - attract more collateral instead.
• The flywheel ties it all together: yield draws collateral, collateral adds capacity, capacity invites borrowing, borrowing lifts yield - and it compounds.