2.5 Liquidations If the users Health Factor is below 1, meaning that his outstanding borrowing exceeds the sum of all his eTokens multiplied by each Collateral Factor, a portion of the outstanding borrowing may be repaid by any third party in exchange for the users proportional eToken collateral at a discount price. Additionally, a small fee will be received by the Variable Rate Pool as compensation for absorbing bad debt residuals after all the proportional collateral is liquidated. Any user may invoke the liquidation function in a permissionless way. In order to return the borrowers account to solvency as fast as possible, and involving as few liquidations as possible, the protocol has a Dynamic Close Factor (based on the users degree of insolvency) that is the proportion of outstanding borrows that must be repaid in order to return an user to a solvency situation. 3. The Exactly Interest Rate Model

Besides an interest rate function for the Variable Rate Pool, the Exactly protocol has a demand curve for interest rates that is based on the Utilization Rate of each Fixed Rate Pool. Increasing and decreasing the interest liquidity and borrowers to request more credit, respectively. Thus, this mechanism favors the convergence towards an equilibrium between supply and demand. Since for each of the assets are a certain number of maturities, by observing the interest rate term structure users can determine which pools are most interesting to participate in. rate incentivizes lenders to provide additional Exactly adopts for lending rates a continuous and differentiable function of the Utilization Rate. The function was designed to diverge asymptotically for a certain boundary value of utilization, 5

The curve can be easily parametrized to adjust it to changing protocol market conditions. In principle, there will be a demand function for each asset and each maturity. Conceptually, the function was designed in such a way that it naturally divides the utilization domain into three well-differentiated regions. A first rates called normal-regime where the utilization levels are well below the available liquidity; a second region (II) called leveraged-regime where interest rates increase as utilization levels start to exhaust the available resources; and a third region (III) called unreachable-regime where rate levels are even higher, eventually diverging, and where it is not possible to take credits. region (I) of normal

3.1 Borrow Interest Rate in Fixed Rate Pools The borrow interest rate for each Fixed Rate Pool is a rational function that aims to incentivize liquidity on each of the Fixed Rate Pools, but doesnt guarantee it. The function takes the following form: () = ( ) + 6 Where is the Utilization Rate and , and are parameters whose values are obtained either from calibration against relevant market data or defined by the Risk Management Committee multisig (see section 4, Governance). The Utilization Rate in each of the Fixed Rate Pools at any time is defined as: , = , + , Where , is the total amount of outstanding borrows at time in the Fixed Rate Pool, , is the total outstanding deposits, Rate Pool for this particular asset and is a moving average of the total supply in the Variable is a customizable parameter that regulates the