Variable Rates

⚠️This section is still subject to major changes and reviews.

Debt instruments may have variable interest rates, based on external data oracles.

If the debt instrument has variable interest rates, the D-ASA MAY implement the OPTIONAL set_variable_interest method.

Interest Update Dates

The D-ASA MUST define interest update dates of known $[RRF]$ or unknown $[RR]$ with respect to:

• time events if the D-ASA has fixed number of coupons (see Time Events section);

• time periods if the D-ASA has undefined number of coupons (see Time Periods section).

The first interest update date corresponds to $[RRANX]$.

Spread

Debt instruments typically define a spread (bps) with respect to an external index to update the interest rate.

The D-ASA MAY define a rate spread $[RRSP]$ (uint16) in bps to apply to the external interest data feed.

The rate spread MUST be set using the OPTIONAL set_variable_rate method.

If the debt instrument has no rate spread, then the D-ASA MUST set the rate spread to 0.

📎 EXAMPLE

A D-ASA has variable interest rates pegged to an off-chain index. Interest update is equal to the off-chain index plus the rate spread (bps).

Cap and Floor

Debt instruments may define limitations to the interest rate variability, either over the whole contract lifespan or over specific periods.

Life Caps

The D-ASA MAY define a life cap $[RRLC]$ (uint16) in bps to apply to the variable interest rate.

The D-ASA MAY define a life floor $[RRLF]$ (uint16) in bps to apply to the variable interest rate.

The life cap and the life floor MUST be set using the OPTIONAL set_variable_rate method.

If the debt instrument has no life cap, then the D-ASA MUST set the life cap to 0.

If the debt instrument has no life floor, then the D-ASA MUST set the life floor to 0.

Period Caps

The D-ASA MAY define a period cap $[RRPC]$ (uint16) in bps to apply to the variable interest rate.

The D-ASA MAY define a period floor $[RRPF]$ (uint16) in bps to apply to the variable interest rate.

The period cap and the period floor MUST be set using the OPTIONAL set_variable_rate method.

If the debt instrument has no period cap, then the D-ASA MUST set the period cap to 0.

If the debt instrument has no period floor, then the D-ASA MUST set the period floor to 0.

Fixing Period

Debt instruments usually schedule interest rate updates before the new rate applies (defined by the rate reset schedule).

The D-ASA MUST define a fixing period $[RRFIX]$ (uint64) that specifies a period of time before the coupon due date in which the interest can be updated.

The fixing period MUST be set using the OPTIONAL set_variable_rate method.

Rates Update

Debt instruments may have a fixed or undefined rate update schedule.

If the debt instrument has a fixed rate update schedule, then the D-ASA MUST use the coupon due dates (either time events or time periods) as anchors for the rate update events (see Time Schedule section).

The interest rate MAY be updated using the OPTIONAL update_interest_rate method.

If the D-ASA has coupons, the interest rate MUST NOT be updated if there is any due coupon still to be paid.

The coupon rates MAY be updated using the OPTIONAL update_coupon_rates method.

The coupon rates MUST NOT be updated if there is any due coupon still to be paid.

The updated coupon rates MUST NOT modify past coupon rates.

The interest rate and coupon rates updatability MUST be restricted to the interest oracle role (see Oracles section).

📎 EXAMPLE

A D-ASA has variable interest rates pegged to an off-chain index. Interest update permissions are granted to an external interest oracle.

📎 EXAMPLE

A D-ASA has variable interest rates based on covenant breaches. Interest update permissions are granted to a trustee in charge of verifying breaches.