✍️Understanding Borrow and Supply APY
The Annualized Percentage Yield (APY) is a standardized metric that expresses interest rates over a one-year period while accounting for continuous compounding. Within the Horizon protocol, APY provides a transparent framework for evaluating both borrowing costs and lending returns across all markets.
Horizon distinguishes clearly between interest-based yield generated by protocol usage and emission-based incentives distributed by the protocol. This distinction is foundational to Horizon’s economic design and user-facing disclosures.
Borrow APY
The Borrow APY represents the effective annualized interest cost incurred by borrowers. It is derived directly from the instantaneous borrow rate produced by the market’s Interest Rate Model (IRM).
The IRM outputs a per-second borrow rate that responds dynamically to market utilization and predefined risk parameters. This rate is continuously compounded to produce the Borrow APY.
Borrow APY Formula
Where:
borrowRate is the per-second interest rate provided by the IRM
secondsPerYear = 31,536,000
This formulation ensures precise accounting and reflects the true cost of borrowing over time.
Supply APY
The Supply APY represents the effective annualized yield earned by lenders supplying assets to Horizon Earn Vaults.
Only capital that is actively borrowed generates interest. As a result, Supply APY is directly dependent on market utilization and is derived from the Borrow APY after accounting for utilization and protocol fees.
Supply APY Formula
Where:
Utilization is the ratio of total borrowed assets to total supplied assets
Fee is the protocol performance fee applied to borrower interest
At present, no supply-side fees are active, meaning the fee parameter equals zero unless explicitly enabled in the future.
NOVA Emissions and Incentive APR
In addition to interest generated from borrower activity, eligible Earn Vaults may receive rewards from the NOVA Emission Pool. These emissions are designed to incentivize early liquidity provision, support market formation, and reward long-term participation.
NOVA emissions are supplemental incentives and are not a source of base yield.
Separation of Yield Sources
For transparency and accurate risk assessment, Horizon explicitly separates interest-based APY from emission-based incentives.
Users are presented with two distinct return metrics:
Base Supply APY Generated exclusively from borrower interest, utilization, and protocol fees.
NOVA Incentive APR Generated from scheduled NOVA token distributions to eligible suppliers.
These values are displayed independently in the user interface.
Incentive APR Characteristics
NOVA rewards are distributed according to predefined emission schedules.
Emissions are fixed in quantity and independent of borrowing demand.
Incentive APR varies dynamically based on:
Total eligible supplied liquidity
Emission rate
Vault participation levels
As a result, Incentive APR may fluctuate over time and should not be interpreted as guaranteed or permanent yield.
Combined Return Perspective
While displayed separately, a lender’s effective total return may be conceptually expressed as:
This representation is provided for intuition only. The protocol does not internally compound or merge these values.
Supply APY reflects sustainable, usage-driven yield.
Incentive APR reflects time-bounded protocol incentives.
Summary
Horizon’s APY framework provides transparent, market-driven pricing for both borrowers and lenders while maintaining a strict separation between sustainable interest income and protocol incentives.
Borrow APY defines the cost of capital. Supply APY defines real yield from protocol usage. NOVA Incentive APR enhances returns without compromising economic clarity.
Together, these components create a clear, auditable, and sustainable return profile aligned with long-term protocol and market health.
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