# How Interest Rates Work Interest rates determine the rewards of staking and play a significant role in the overall incentives you receive for staking into a vault. Understanding how rates behave helps you make more informed staking decisions. ### Why interest rates exist When you stake BTC and stablecoin, you earn interest from the vault in exchange for access to your liquidity. The rate you receive is determined by the vault’s model, market conditions, and the depth of liquidity. ### What affects interest rates Interest rates can move for several reasons, including: * Liquidity supply: lower supply may increase rates. * Available liquidity: more supply may lower rates. * Market conditions: volatility or rapid inflows/outflows can affect utilization. * Vault parameters: each vault defines its own rules for adjusting rates. Rates are not static; they evolve based on how the market is behaving. ### Variable (Floating) interest rates A variable (or floating) rate adjusts over time. Most crypto-backed vaults use variable models because they react to changing market conditions. Variable rates may: * decrease when demand is low * increase when liquidity is scarce or utilization is high * update frequently depending on vault mechanisms Variable rates offer higher rates during favorable conditions but can decrease unexpectedly. ### Fixed interest rates Some vaults offer fixed rates for staking. A fixed rate remains the same for the duration of the staking period and does not change with market conditions. Fixed rates may: * provide predictability and easier planning * be lower than floating rates during stable market periods ### Why rate movement matters Changing interest rates can affect: * Total interest received over the life of the stake * Annualised Percentage Yield (APY), since interest accrues * Strategy risk, especially for users staking with borrowed assets Monitoring your staked vault and understanding how rates behave is important during active yield farming. ### How Borrow presents interest rates * shows each vault’s current rate before you stake * displays your active rate and metrics in the dashboard * makes rate behavior visible without managing rates on your behalf This gives you clarity while keeping control in your hands. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.satsterminal.com/earn/security-and-risk/how-interest-rates-work.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.