Dynamic interest rates refer to interest rates that fluctuate based on market conditions, supply and demand, or other external factors. In some cryptocurrency platforms, especially decentralized finance (DeFi) applications, these rates can change frequently.For instance, when there is a high demand for borrowing a specific token, the interest rates for borrowing that token may increase. Conversely, when demand decreases, the rates may drop. This dynamic nature allows lenders to earn more during high demand periods while also enabling borrowers to access lower rates when supply is ample.This system aims to create a more responsive financial ecosystem. Users are incentivized to lend or borrow when rates are favorable, promoting liquidity and efficient capital allocation. Such mechanisms are often automated through smart contracts, ensuring that the rates adjust in real-time based on existing conditions in the market. Overall, dynamic interest rates play a crucial role in DeFi, making it a flexible and adaptive option for users engaged in lending and borrowing activities.