When you supply an asset, the rate you earn is shown as an APY (annual percentage yield). It's worth understanding what drives that number, since it changes with market conditions.
The Two Components of Supply APY
Your total supply APY has two parts: base APY and rewards APY.
Base APY
Base APY comes from interest paid by borrowers. It's earned automatically and compounds through your mToken position, so you don't need to take any action.
Because this interest comes from borrowing demand, the more an asset is borrowed, the higher its base APY tends to be.
Rewards APY
Rewards APY represents additional incentive tokens (like WELL) that Moonwell distributes to suppliers. Unlike base APY, rewards APY doesn't auto-compound.
You claim these rewards manually, and once claimed you can re-supply them to earn additional interest.
Add the two together and you get the total APY shown in the app.
Market Utilization
Utilization is the biggest driver of your rate. It's calculated as borrowed amount divided by total supply, and it tells you what share of the supplied assets are currently being borrowed.
Low utilization (20 to 40%): Less borrowing demand, lower APY for suppliers.
Medium utilization (40 to 80%): Balanced supply and demand, moderate APY.
High utilization (80%+): High borrowing demand, higher APY for suppliers.
When utilization rises, interest rates increase. This rewards suppliers and encourages borrowers to repay, which keeps liquidity available. When utilization falls, rates drop to encourage more borrowing. The system is self-balancing.
One practical note: at very high utilization, most supplied assets are lent out, so withdrawals can be temporarily limited until borrowers repay.
Interest Rate Models
Moonwell uses interest rate models to set rates based on utilization. These models automatically raise or lower the rate as supply and demand shift, so you don't have to track anything manually.
You don't need to understand the math. The takeaway: higher utilization generally means a higher APY on your supplied assets, and rates move on their own as conditions change.
Collateral Factor
The collateral factor is the percentage of your supplied value that can be used as borrowing power. It only matters if you plan to borrow; if you only supply, you can ignore it. For example:
USDC with an 80% collateral factor: supply $100 USDC, borrow up to $80 worth of other assets.
ETH with a 75% collateral factor: supply $100 ETH, borrow up to $75 worth of other assets.
Different assets have different collateral factors based on their risk profile. Stablecoins like USDC typically have higher collateral factors (80 to 90%) than volatile assets like ETH (70 to 80%), because their prices are steadier.
Key Points
Base APY auto-compounds through your mToken position.
Rewards APY must be claimed manually.
Utilization is the main driver of the rate you earn.
Rates are dynamic and adjust automatically with market conditions.
Collateral factor determines your borrowing power if you choose to borrow.
Frequently Asked Questions
Why did my APY change?
APYs move with utilization and incentive programs. As borrowing demand rises or falls, your rate adjusts automatically.
Is the APY fixed when I supply?
No. It's variable and updates as market conditions change. The figure you see is a current estimate, not a locked rate.
Does a higher APY mean higher risk?
A higher APY usually reflects higher borrowing demand rather than higher risk to suppliers. Supplying carries smart contract risk and, if you borrow, liquidation risk.
How do I increase what I earn?
You earn the market rate for each asset. You can claim and re-supply rewards to compound them, and compare rates across assets and markets on the Markets page.