If you hold PRIME, you may have noticed that the rate you earn is different from the Democratized Prime HELOC+ rate you see quoted elsewhere. This article explains how the PRIME rate is calculated, what drives it, and why it moves.
The short version
PRIME earns yield from two sources. A portion of your capital is matched to borrower demand in the Democratized Prime HELOC+ lending pool, where it earns the DP clearing rate. The remaining portion sits as YLDS and earns the YLDS rate. The PRIME rate you see is the combined weighted average of those two sources, minus a 0.50 percent Hastra platform fee.
That is why the PRIME rate is lower than the raw DP HELOC+ rate. Not all of the capital deposited into PRIME gets matched to borrowers. The unmatched portion earns the YLDS rate, which is lower, and that pulls the blended rate down.
Want to learn more about the full breakdown? Continue reading below.
The math
The PRIME rate is calculated as:
PRIME Rate = (Matched / PRIME TVL) × DP Rate
+ (Unmatched / PRIME TVL) × YLDS Rate
− 0.50%
Where:
Matched = the amount of PRIME capital that is actively lent to borrowers in the HELOC+ pool, earning the DP clearing rate. This portion compounds every hour.
Unmatched = the amount of PRIME capital that is not currently matched to borrower demand. This portion earns the YLDS rate (currently approximately 3.3 percent).
PRIME TVL = the total value locked in PRIME (Matched + Unmatched).
DP Rate = the Democratized Prime HELOC+ clearing rate, set by the hourly Dutch auction.
0.50% = the annual Hastra platform fee.
A worked example
Suppose PRIME has $400 million in total deposits. $360 million is matched to borrower demand in the HELOC+ pool at an 8 percent DP clearing rate. $40 million is unmatched and earning the YLDS rate at 3.3 percent.
PRIME Rate = (360M / 400M) × 8.0%
+ (40M / 400M) × 3.3%
− 0.50%
= (0.90 × 8.0%) + (0.10 × 3.3%) − 0.50%
= 7.20% + 0.33% − 0.50%
= 7.03%
In this scenario, the DP HELOC+ rate is 8 percent, but PRIME holders earn approximately 7.03 percent because 10 percent of the pool is unmatched and the Hastra fee applies. If more borrower demand enters the pool and more capital gets matched, the PRIME rate moves closer to the DP rate. If lender supply outpaces borrower demand, more capital sits unmatched at the YLDS rate, and the PRIME rate compresses.
What makes the PRIME rate move?
Two things drive the PRIME rate: the DP HELOC+ clearing rate itself, and the proportion of PRIME capital that is matched versus unmatched.
The DP clearing rate moves based on supply and demand in the hourly Dutch auction. When more lender capital enters the pool relative to borrower demand, the auction clears at a lower rate. When borrower demand rises relative to lender supply, it clears higher. This is the same mechanism described in our article on why PRIME yield changes.
The matched/unmatched ratio moves based on how much borrower demand exists in the HELOC+ pool relative to the total PRIME capital available. Hastra is a price taker in the auction, it passes through whatever the clearing rate is rather than setting its own. So the amount that gets matched is purely a function of how much borrowers want.
When both factors move in the same direction, the DP rate compresses and more capital sits unmatched simultaneously - the PRIME rate can drop faster than the DP rate alone would suggest. The reverse is also true.
What is changing
The Democratized Prime system is migrating to a new smart contract architecture. When this migration is complete, the rate-setting mechanism will change from the current hourly Dutch auction to a continuous utilization function.
In the new system, the interest rate adjusts continuously - block by block - based on how much of the total lending supply is being consumed by borrower demand. This is similar to how lending protocols like Aave determine their interest rates: a utilization curve where the rate is a function of the percentage of capital that is actively borrowed.
After the migration, Hastra depositors and direct Democratized Prime lenders will earn from the same rate function. PRIME holders will earn the utilization-based rate minus the 0.50 percent Hastra platform fee.
The key differences after migration:
Rate adjustment: Moves from hourly to continuous (block-by-block). No more waiting for the next auction cycle.
Volatility: Expect the rate to be somewhat more volatile than today. Under the current system, minting or redeeming PRIME does not directly impact the clearing rate. After migration, large deposits or withdrawals will flow through to the rate function in real time, meaning the rate will respond to capital movements more immediately.
Simplicity: The blended rate concept (matched DP rate vs. unmatched YLDS rate) is replaced by a single utilization-based rate that everyone earns. The PRIME rate will simply be the pool’s utilization rate minus the 0.50 percent Hastra fee.
Frequently Asked Questions
Why is the PRIME rate lower than the DP HELOC+ rate?
Because not all PRIME capital gets matched to borrowers. The matched portion earns the DP rate, but the unmatched portion earns only the YLDS rate. The weighted average of the two, minus the 0.50 percent Hastra fee, is lower than the raw DP rate. After the smart contract migration, this will simplify to a single utilization-based rate minus the Hastra fee.
Can the PRIME rate go below the YLDS rate?
In practice, the PRIME rate will always be at or above the YLDS rate as long as any portion of the pool is matched to borrowers. The unmatched capital earns the YLDS rate as a baseline. The 0.50 percent Hastra fee could technically bring the effective rate slightly below the YLDS rate in an extreme scenario where almost no capital is matched, but this would be unusual.
Does anyone at Figure or Hastra set the PRIME rate manually?
No. The rate is determined entirely by market dynamics, the Dutch auction clearing rate and the proportion of matched versus unmatched capital. After the smart contract migration, it will be determined by the utilization function. Neither Figure nor Hastra sets or adjusts it manually.
Will the migration affect my deposits?
No action is required on your part. The migration redirects which pool Hastra points to on the backend. There may be a brief transition period of approximately one hour where the system switches over. Your deposits remain intact throughout.
Will the rate be higher or lower after migration?
It depends on utilization at any given moment. The structural difference is that the rate will be more responsive to supply and demand in real time. It may be more volatile on a block-by-block basis, but it will more accurately reflect the true market-clearing rate for HELOC+ lending at any point in time.
What is the 0.50 percent Hastra fee?
This is an annual platform fee that Hastra charges for providing DeFi access to Democratized Prime yields. It is deducted from the rate you earn. Direct Democratized Prime lenders on Provenance do not pay this fee, but they also do not benefit from Hastra’s DeFi composability, multi-chain access, and simplified user experience.
Rates or returns associated with Democratized Prime are not fixed or guaranteed and may vary based on pool composition, borrower performance, auction dynamics, and prevailing market conditions. Terms and conditions available at figuremarkets.com/disclosures.
This article is for educational purposes only and does not constitute financial advice. Always do your own research and consider consulting with financial professionals before making investment decisions.