ask rate and bid rate meaning

What Are Bid-Ask Interest Rates?

Bid-ask interest rates refer to the two-sided rates for capital utilization on the same asset: the "bid rate" is the interest you pay when borrowing funds, while the "ask rate" is the interest you earn when lending funds. These rates act as the "price of money" and are typically calculated on an annualized basis over time.

Interest rates can be understood as the cost or reward of shifting money from today to the future. Borrowing means paying for the use of capital; lending means collecting rent for your funds. The bid rate represents your borrowing cost, while the ask rate represents your lending yield. These two rates are usually not identical.

How Do Bid-Ask Interest Rates Relate to Bid-Ask Spread?

The difference between bid and ask interest rates is called the spread. Spread = ask rate − bid rate, which serves as a measure of market liquidity costs, risk compensation, and platform service fees.

For example: if a stablecoin on a lending market shows a 12% annualized borrowing rate (bid rate) and an 8% annualized lending rate (ask rate), the spread is 4%. This 4% may cover bad debt risks, operational expenses, and incentives for market making. A larger spread typically signals higher perceived risk or tighter supply and demand for capital.

When markets are flush with capital—many lenders and few borrowers—the ask rate drops, the bid rate may also decline, and the spread narrows. Conversely, when funds are scarce, the bid rate rises more rapidly and the spread widens.

How Are Bid-Ask Interest Rates Reflected in DeFi and Web3?

In DeFi lending protocols, you will see two distinct rates: annualized deposit (lending) and annualized borrow rates, which correspond directly to bid-ask interest rates. Many platforms display both APR (annual percentage rate without compounding) and APY (annual percentage yield with compounding)—be sure to differentiate between them.

Within perpetual contracts, "funding rates" are periodically settled between long and short positions. These rates reflect the bid-ask interest rate dynamic: longs pay as the "bid" side's cost, shorts receive as the "ask" side's yield. The funding rate can be positive or negative depending on market sentiment.

As of 2024, mainstream stablecoins on major lending protocols typically show borrowing APRs in the 2%–10% range, with deposit APRs around 1%–8%. Actual rates vary based on asset type, utilization, and market volatility (source: protocol dashboards and on-chain data panels, 2024).

How Are Bid-Ask Interest Rates Determined?

Bid-ask interest rates are shaped by supply and demand for capital, risk levels, and operational costs. When borrowing demand is strong and available capital is limited, bid rates rise faster; when there is ample lending capital, ask rates decline.

Higher risk leads to higher rates. Protocols or platforms need the spread to cover potential defaults, liquidation delays, price volatility, and other risks. Additionally, costs associated with on-chain operations, oracles, risk management, and market making also consume part of the spread.

Utilization is a key metric: higher utilization (more funds lent out) typically drives up bid rates; lower utilization results in falling rates and possibly a narrower spread.

Where Can You View Bid-Ask Interest Rates on Gate?

You can directly view both sides of the interest rates on product pages: annualized borrowing is the bid rate; annualized deposit or savings is the ask rate. Always distinguish APR from APY, and monitor real-time fluctuations and fee details.

Step 1: Identify your role. If you are borrowing assets (financing), focus on the bid rate; if you are lending or providing liquidity (savings), focus on the ask rate.

Step 2: On Gate, check relevant features for interest rates. "Margin/Borrowing" sections display borrowing rates (bid rate); "Savings/Term or Flexible" sections display savings yields (ask rate). Some contract pages also show the funding rate's direction and settlement cycle.

Step 3: Confirm calculation method. Check whether it's APR or APY, note any additional fees, discounts, promotional rates, tiered structures, or cap limits.

Step 4: Assess volatility and risk. Watch recent rate ranges, asset liquidity, and liquidation rules to maintain a safe margin for your positions.

What Do Bid-Ask Interest Rates Mean for Your Returns and Costs?

For borrowers, the bid rate directly determines financing costs; for lenders, the ask rate sets your earnings. The spread between them represents the "price of accessing capital."

Example 1: If you borrow USDT via Gate for leverage at a 10% annualized bid rate for 30 days, your approximate financing cost is 10% × (30/365). If there are funding fees or transaction charges during this period, include them in your calculation.

Example 2: If you deposit USDT into flexible savings at a 6% annualized ask rate for 30 days, your expected yield is roughly 6% × (30/365). If the product uses APY with daily compounding, actual earnings will be slightly higher than linear APR calculations.

If you pursue "borrow + lend" strategies (like arbitrage or hedging), track both sides' net rate difference, slippage, funding fee changes, and position risks—avoid situations where nominal spread is positive but actual returns are negative.

What Are the Risks When Using Bid-Ask Interest Rates?

Interest Rate Volatility Risk: Bid-ask interest rates can change rapidly with market dynamics; borrowing costs may rise while savings yields may fall.

Liquidation & Price Risk: In leveraged or collateralized lending, declines in underlying asset prices may trigger liquidation—even if ask rates remain stable, portfolio losses can offset interest gains.

Liquidity & Withdrawal Restrictions: Some products have cap limits, redemption cycles, or queuing mechanisms that can affect your effective yield and accessible funds.

Protocol & Platform Risk: Smart contract bugs, oracle failures, or operational changes may alter interest rates or cause losses. For capital safety, diversify risk—avoid concentrating all funds in a single product.

Bid-Ask Interest Rate Summary

Bid-ask interest rates consist of the payment side for borrowers (bid rate) and earning side for lenders (ask rate), with their difference being the spread. These rates are shaped by supply-demand dynamics, risk factors, and operational costs. They are reflected across DeFi protocols, perpetual contracts, trading platforms' lending products, savings products, and funding fee structures. Before making decisions, clarify whether you are borrowing or lending; then review relevant Gate features for current rates and calculation methods to accurately estimate total costs/yields while maintaining a safety margin. Since rates fluctuate and risks emerge continuously, consistently monitor rate ranges, utilization ratios, and rule changes to use bid-ask interest rates to your advantage—not against you.

FAQ

What Determines Interest Rates?

Bid-ask interest rates are primarily dictated by market supply and demand. When borrowing demand increases, rates rise; when supply is abundant, rates fall—similar to how prices of goods fluctuate with market dynamics. Additionally, central bank benchmark rates, risk premiums, and liquidity conditions also influence specific rate levels.

What Is Repo Rate?

The repo rate refers to the standard interest rate in bond repurchase transactions. Both parties agree to repurchase bonds at a set price on a future date; the difference in price generates the repo rate. It reflects the short-term borrowing cost of funds and is commonly used as an important indicator of market liquidity.

What Is the Difference Between Interest Rate and Interest?

Interest rate is a percentage figure (e.g., 5% per annum), while interest is the actual amount paid (e.g., borrowing $100 incurs $5 yearly interest). Simply put: interest rate is a ratio; interest is a result. Understanding this distinction helps you calculate transaction costs accurately and avoid confusion in financial calculations.

What Does Market Interest Rate Mean?

Market interest rate refers to the actual prevailing rate established through real transactions—negotiated between supply and demand in open markets. It fluctuates in real time and reflects current market perceptions of capital value. Lending rates displayed on platforms like Gate are real-time market interest rates.

Why Is My Transaction Cost Different From Expectations?

This is usually due to fluctuations in bid-ask interest rates. These rates shift dynamically with market liquidity; peak periods often see higher rates. Before trading, check real-time rates on Gate, choose optimal timing for transactions, and always confirm the latest fee disclosures before placing orders.