> For the complete documentation index, see [llms.txt](https://mars-protocol.gitbook.io/mars-protocol/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://mars-protocol.gitbook.io/mars-protocol/mars/the-red-bank/dynamic-interest-rate-model.md).

# Dynamic Interest Rate Model

In the traditional money market model the interest rate is calculated based only on the current utilization rate. 

Mars aims to look at the utilization as a parameter that can be manipulated by another parameter (like temperature in a physical system can be manipulated using heating and cooling units). Keeping a response parameter constant is quite a common problem in control theory and there is a well known method to solve it — the **Proportional-Integral-Derivative (PID**) controller and its variations. A PID controller continuously calculates the difference between the desired point (set point — optimal utilization) and actual value (process variable — actual utilization). Then it continuously corrects itself based on the proportional, derivative, and integral terms.

#### Simply put, the PID controller works as follows: 

1. It calculates the difference between the optimal utilization + the current utilization.
2. It adjusts the IR accordingly. All else being equal, the higher the difference, the higher the IR adjustment.
3. It repeats (1) periodically.

**Should governance elect to activate it**, Mars will be the first credit protocol to feature dynamic interest rates. Rates will not be defined by a pre-determined curve but will rather evolve dynamically based on market conditions.

i.e., interest rates will be adjusted based on changes in supply and demand to target an optimal utilization level.

Learn more about Mars' dynamic interest rate model:

{% embed url="<https://mars-protocol.medium.com/exploring-mars-protocols-dynamic-interest-rate-model-4347c303bf28>" %}