> For the complete documentation index, see [llms.txt](https://calnix.gitbook.io/aave-book/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://calnix.gitbook.io/aave-book/functions/common-functions/.updateinterestrates.md).

# .updateInterestRates

## TLDR

The `updateInterestRates` function serves to update the following interest rates

* liquidity interest rate 
* variable borrow interest rate 
* stable borrow interest rate

Typically, this function is executed **after state-changes have been done** (borrow, repay, supply, etc), to reflect updated rates, accounting for said action taken. 

## Code

### **.updateInterestRates** 

`updateInterestRates` will modify system-wide rates according to whether 

* liquidity added: supply or repay
* liquidity removed: borrow or redeem

<figure><img src="/files/6uj72tm2kK7VnBn33KkW" alt=""><figcaption></figcaption></figure>

* In most instances, either `liquidityAdded` or `liquidityRemoved` will be a zero value, while the other is a non-zero value.
* The core logic is wrapped within `.calculateInterestRates`, which returns the updated rates.

### Execution Flow

<img src="/files/8yLGtsd7zXD5IoKil4Ag" alt="" class="gitbook-drawing">

## **.calculateInterestRates**&#x20;

<figure><img src="/files/hGm66NqX6dSqjcuhboga" alt=""><figcaption></figcaption></figure>

### Visual Walkthrough&#x20;

<figure><img src="/files/zqJzSrlgVIr50xF2v6Rz" alt=""><figcaption></figcaption></figure>

* get necessary ratios which will be used in the later section to examine if utilization has exceeded certain thresholds

<figure><img src="/files/8NbqAIkVQXxEWsMxOrsb" alt=""><figcaption></figcaption></figure>

* If borrow utilization exceeds optimal utilization, {...}, else {...}
* OPTIMAL\_USAGE\_RATIO and MAX\_EXCESS\_USAGE\_RATIO are immutable; values are set within constructor.
* For in-depth explanation on why the increments are done as above, see:
  * [variable rate model](/aave-book/deposit-and-borrow-interest.md#borrow-interest)
  * [stable rate model ](/aave-book/stable-borrowing.md#stable-rate-model)

<figure><img src="/files/RzqJsLXGKMcWxuoIzytu" alt=""><figcaption></figcaption></figure>

* there is an additional check for stable rates

<figure><img src="/files/BG5hgDsMjG8Ea2XFr11n" alt=""><figcaption></figcaption></figure>

* getOverallBorrowRate simply calculates the weighted average borrow rate based off variable and stable components
* currentLiquidityRate is calculated as a component of overallBorrowRate, accounting for the portion that goes to the treasury.

### Complete picture

<figure><img src="/files/pOmEXYSDGTKQr3wWzeRe" alt=""><figcaption></figcaption></figure>


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