Variability of Borrowing Costs (Public Vs Private Money Market)

DeFi money markets provide a variable APR to supply (lend) and borrow tokens. The APR is determined by supply and demand of the tokens. If there is high demand for tokens it results in a high utilization rate (%) of that token. This will increase the borrow rate of the token, which in turn incentivizes either more lenders to come in and supply those tokens to earn a high APR, or it will force borrowers to repay the loans because they have become too expensive.

While an end user is yield farming, it is entirely possible that there will be spikes in borrow rates, causing the yields in the position to reduce or even to turn negative. Typically, these periods are short lived (4-8hrs) as large lenders will see high yields and lend their assets into the money markets to earn a high APR, which brings the borrow rate APR back down.

BoF is actively seeking strategic partnerships with private lenders who are happy to lend capital for the purpose of yield farming at a fixed cost. This will make the APRs generated on the farms far more predictable (even though the APRs generated on each yield farm are variable themselves).