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Interest Bearing Token

Interest Bearing Token

Summary #

  • Creators can set an interest rate and store it directly on the mint account.
  • The underlying token quantity for interest bearing tokens remains unchanged.
  • The accrued interest can be displayed for UI purposes without the need to frequently rebase or update to adjust for accrued interest.
  • The lab demonstrates configuring a mint account that is set to mint with an interest rate. The test case also shows how to update the interest rate, along with retrieving the rate from the token.

Overview #

Tokens with values that either increase or decrease over time have practical applications in the real world, with bonds being a prime example. Previously, the ability to reflect this dynamic in tokens was limited to the use of proxy contracts, necessitating frequent rebasing or updates.

The interest bearing token extension helps with this. By leveraging the interest bearing token extension and the amount_to_ui_amount function, users can apply an interest rate to their tokens and retrieve the updated total, including interest, at any given moment.

The calculation of interest is done continuously, factoring in the network's timestamp. However, discrepancies in the network's time could result in accrued interest being slightly less than anticipated, though this situation is uncommon.

It's important to note that this mechanism does not generate new tokens and the displayed amount simply includes the accumulated interest, making the change purely aesthetic. That being said, this is a value stored on within the mint account and programs can take advantage of this to create functionality beyond pure aesthetics.

Adding interest rate to token #

Initializing an interest bearing token involves three instructions:

  • SystemProgram.createAccount
  • createInitializeTransferFeeConfigInstruction
  • createInitializeMintInstruction

The first instruction SystemProgram.createAccount allocates space on the blockchain for the mint account. This instruction accomplishes three things:

  • Allocates space
  • Transfers lamports for rent
  • Assigns to it's owning program
SystemProgram.createAccount({
    fromPubkey: payer.publicKey,
    newAccountPubkey: mint,
    space: mintLen,
    lamports: mintLamports,
    programId: TOKEN_2022_PROGRAM_ID,
  }),

The second instruction createInitializeInterestBearingMintInstruction initializes the interest bearing token extension. The defining argument that dictates the interest rate will be a variable we create named rate. The rate is defined in basis points.

  createInitializeInterestBearingMintInstruction(
    mint,
    rateAuthority.publicKey,
    rate,
    TOKEN_2022_PROGRAM_ID,
  ),

The third instruction createInitializeMintInstruction initializes the mint.

createInitializeMintInstruction(
  mint,
  decimals,
  mintAuthority.publicKey,
  null,
  TOKEN_2022_PROGRAM_ID,
);

When the transaction with these three instructions is sent, a new interest bearing token is created with the specified rate configuration.

Fetching accumulated interest #

To retrieve the accumulated interest on a token at any given point, first use the getAccount function to fetch token information, including the amount and any associated data, passing in the connection, payer's token account, and the relevant program ID, TOKEN_2022_PROGRAM_ID.

Next, utilize the amountToUiAmount function with the obtained token information, along with additional parameters such as connection, payer, and mint, to convert the token amount to its corresponding UI amount, which inherently includes any accumulated interest.

const tokenInfo = await getAccount(
  connection,
  payerTokenAccount,
  undefined,
  TOKEN_2022_PROGRAM_ID,
);
 
/**
 * Get the amount as a string using mint-prescribed decimals
 *
 * @param connection     Connection to use
 * @param payer          Payer of the transaction fees
 * @param mint           Mint for the account
 * @param amount         Amount of tokens to be converted to Ui Amount
 * @param programId      SPL Token program account
 *
 * @return Ui Amount generated
 */
const uiAmount = await amountToUiAmount(
  connection,
  payer,
  mint,
  tokenInfo.amount,
  TOKEN_2022_PROGRAM_ID,
);
 
console.log("UI Amount: ", uiAmount);

The return value of uiAmount is a string representation of the UI amount and will look similar to this: 0.0000005000001557528245.

Update rate authority #

Solana provides a helper function, setAuthority, to set a new authority on an interest bearing token.

Use the setAuthority function to assign a new authority to the account. You'll need to provide the connection, the account paying for transaction fees (payer), the token account to update (mint), the current authority's public key, the type of authority to update (in this case, 7 represents the InterestRate authority type), and the new authority's public key.

After setting the new authority, use the updateRateInterestBearingMint function to update the interest rate for the account. Pass in the necessary parameters: connection, payer, mint, the new authority's public key, the updated interest rate, and the program ID.

/**
 * Assign a new authority to the account
 *
 * @param connection       Connection to use
 * @param payer            Payer of the transaction fees
 * @param account          Address of the account
 * @param currentAuthority Current authority of the specified type
 * @param authorityType    Type of authority to set
 * @param newAuthority     New authority of the account
 * @param multiSigners     Signing accounts if `currentAuthority` is a multisig
 * @param confirmOptions   Options for confirming the transaction
 * @param programId        SPL Token program account
 *
 * @return Signature of the confirmed transaction
 */
 
await setAuthority(
  connection,
  payer,
  mint,
  rateAuthority,
  AuthorityType.InterestRate, // Rate type (InterestRate)
  otherAccount.publicKey, // new rate authority,
  [],
  undefined,
  TOKEN_2022_PROGRAM_ID,
);
 
await updateRateInterestBearingMint(
  connection,
  payer,
  mint,
  otherAccount, // new rate authority
  10, // updated rate
  undefined,
  undefined,
  TOKEN_2022_PROGRAM_ID,
);

Lab #

In this lab, we're establishing Interest Bearing Tokens via the Token-2022 program on Solana. We'll initialize these tokens with a specific interest rate, update the rate with proper authorization, and observe how interest accumulates on tokens over time.

1. Setup Environment #

To get started, create an empty directory named interest-bearing-token and navigate to it. Run npm init -y to initialize a brand new project.

Next, we'll need to add our dependencies. Run the following to install the required packages:

npm i @solana-developers/helpers @solana/spl-token @solana/web3.js esrun dotenv typescript

Create a directory named src. In this directory, create a file named index.ts. This is where we will run checks against the rules of this extension. Paste the following code in index.ts:

import { Connection, Keypair, PublicKey } from "@solana/web3.js";
 
import {
  ExtensionType,
  getMintLen,
  TOKEN_2022_PROGRAM_ID,
  getMint,
  getInterestBearingMintConfigState,
  updateRateInterestBearingMint,
  amountToUiAmount,
  mintTo,
  createAssociatedTokenAccount,
  getAccount,
  AuthorityType,
} from "@solana/spl-token";
 
import { initializeKeypair, makeKeypairs } from "@solana-developers/helpers";
 
const connection = new Connection("http://127.0.0.1:8899", "confirmed");
const payer = await initializeKeypair(connection);
const [otherAccount, mintKeypair] = makeKeypairs(2);
const mint = mintKeypair.publicKey;
const rateAuthority = payer;
 
const rate = 32_767;
 
// Create an interest-bearing token
 
// Create an associated token account
 
// Create the getInterestBearingMint function
 
// Attempt to update the interest rate
 
// Attempt to update the interest rate with the incorrect owner
 
// Log the accrued interest
 
// Log the interest-bearing mint configuration state
 
// Update the rate authority and attempt to update the interest rate with the new authority

index.ts creates a connection to the specified validator node and calls initializeKeypair. It also has a few variables we will be using in the rest of this lab. The index.ts is where we'll end up calling the rest of our script once we've written it.

2. Run validator node #

For the sake of this guide, we'll be running our own validator node.

In a separate terminal, run the following command: solana-test-validator. This will run the node and also log out some keys and values. The value we need to retrieve and use in our connection is the JSON RPC URL, which in this case is http://127.0.0.1:8899. We then use that in the connection to specify to use the local RPC URL.

const connection = new Connection("http://127.0.0.1:8899", "confirmed");

3. Helpers #

When we pasted the index.ts code from earlier, we added the following helpers:

  • initializeKeypair: This function creates the keypair for the payer and also airdrops 1 testnet SOL to it
  • makeKeypairs: This function creates keypairs without airdropping any SOL

Additionally, we have some initial accounts:

  • payer: Used to pay for and be the authority for everything
  • mintKeypair: Our mint that will have the interest bearing token extension
  • otherAccount: The account we will use to attempt to update interest
  • otherTokenAccountKeypair: Another token used for testing

4. Create Mint with interest bearing token #

This function is where we'll be creating the token such that all new tokens will be created with an interest rate. Create a new file inside of src named token-helper.ts.

import {
  TOKEN_2022_PROGRAM_ID,
  createInitializeInterestBearingMintInstruction,
  createInitializeMintInstruction,
} from "@solana/spl-token";
import {
  sendAndConfirmTransaction,
  Connection,
  Keypair,
  Transaction,
  PublicKey,
  SystemProgram,
} from "@solana/web3.js";
 
export async function createTokenWithInterestRateExtension(
  connection: Connection,
  payer: Keypair,
  mint: PublicKey,
  mintLen: number,
  rateAuthority: Keypair,
  rate: number,
  mintKeypair: Keypair,
) {
  const mintAuthority = payer;
  const decimals = 9;
}

This function will take the following arguments:

  • connection: The connection object
  • payer: Payer for the transaction
  • mint: Public key for the new mint
  • rateAuthority: Keypair of the account that can modify the token, in this case, it is payer
  • rate: Chosen interest rate for the token. In our case, this will be 32_767, or 32767, the max rate for the interest bearing token extension
  • mintKeypair: Keypair for the new mint

When creating an interest bearing token, we must create the account instruction, add the interest instruction and initialize the mint itself. Inside of createTokenWithInterestRateExtension in src/token-helper.ts there are a few variables already created that will be used to create the interest bearing token. Add the following code beneath the declared variables:

const extensions = [ExtensionType.InterestBearingConfig];
const mintLen = getMintLen(extensions);
const mintLamports =
  await connection.getMinimumBalanceForRentExemption(mintLen);
 
const mintTransaction = new Transaction().add(
  SystemProgram.createAccount({
    fromPubkey: payer.publicKey,
    newAccountPubkey: mint,
    space: mintLen,
    lamports: mintLamports,
    programId: TOKEN_2022_PROGRAM_ID,
  }),
  createInitializeInterestBearingMintInstruction(
    mint,
    rateAuthority.publicKey,
    rate,
    TOKEN_2022_PROGRAM_ID,
  ),
  createInitializeMintInstruction(
    mint,
    decimals,
    mintAuthority.publicKey,
    null,
    TOKEN_2022_PROGRAM_ID,
  ),
);
 
await sendAndConfirmTransaction(
  connection,
  mintTransaction,
  [payer, mintKeypair],
  undefined,
);

That's it for the token creation! Now we can move on and start adding tests.

5. Establish required accounts #

Inside of src/index.ts, the starting code already has some values related to the creation of the interest bearing token.

Underneath the existing rate variable, add the following function call to createTokenWithInterestRateExtension to create the interest bearing token. We'll also need to create an associated token account which we'll be using to mint the interest bearing tokens to and also run some tests to check if the accrued interest increases as expected.

const rate = 32_767;
 
// Create interest bearing token
await createTokenWithInterestRateExtension(
  connection,
  payer,
  mint,
  rateAuthority,
  rate,
  mintKeypair,
);
 
// Create associated token account
const payerTokenAccount = await createAssociatedTokenAccount(
  connection,
  payer,
  mint,
  payer.publicKey,
  undefined,
  TOKEN_2022_PROGRAM_ID,
);

6. Tests #

Before we start writing any tests, it would be helpful for us to have a function that takes in the mint and returns the current interest rate of that particular token.

Let's utilize the getInterestBearingMintConfigState helper provided by the SPL library to do just that. We'll then create a function that is used in our tests to log out the current interest rate of the mint.

The return value of this function is an object with the following values:

  • rateAuthority: Keypair of the account that can modify the token
  • initializationTimestamp: Timestamp of interest bearing token initialization
  • preUpdateAverageRate: Last rate before update
  • lastUpdateTimestamp: Timestamp of last update
  • currentRate: Current interest rate

Add the following types and function:

// Create getInterestBearingMint function
interface GetInterestBearingMint {
  connection: Connection;
  mint: PublicKey;
}
 
async function getInterestBearingMint(inputs: GetInterestBearingMint) {
  const { connection, mint } = inputs;
  // retrieves information of the mint
  const mintAccount = await getMint(
    connection,
    mint,
    undefined,
    TOKEN_2022_PROGRAM_ID,
  );
 
  // retrieves the interest state of mint
  const interestBearingMintConfig =
    await getInterestBearingMintConfigState(mintAccount);
 
  // returns the current interest rate
  return interestBearingMintConfig?.currentRate;
}

Updating interest rate

The Solana SPL library provides a helper function for updating the interest rate of a token named updateRateInterestBearingMint. For this function to work correctly, the rateAuthority of that token must be the same one of which the token was created. If the rateAuthority is incorrect, updating the token will result in a failure.

Let's create a test to update the rate with the correct authority. Add the following function calls:

// Attempt to update interest rate
const initialRate = await getInterestBearingMint({ connection, mint });
try {
  await updateRateInterestBearingMint(
    connection,
    payer,
    mint,
    payer,
    0, // updated rate
    undefined,
    undefined,
    TOKEN_2022_PROGRAM_ID,
  );
  const newRate = await getInterestBearingMint({ connection, mint });
 
  console.log(
    `✅ - We expected this to pass because the rate has been updated. Old rate: ${initialRate}. New rate: ${newRate}`,
  );
} catch (error) {
  console.error("You should be able to update the interest.");
}

Run npx esrun src/index.ts. We should see the following error logged out in the terminal, meaning the extension is working as intended and the interest rate has been updated: ✅ - We expected this to pass because the rate has been updated. Old rate: 32767. New rate: 0

Updating interest rate with incorrect rate authority

In this next test, let's try and update the interest rate with the incorrect rateAuthority. Earlier we created a keypair named otherAccount. This will be what we use as the otherAccount to attempt the change the interest rate.

Below the previous test we created add the following code:

// Attempt to update the interest rate as the account other than the rate authority.
try {
  await updateRateInterestBearingMint(
    connection,
    otherAccount,
    mint,
    otherAccount, // incorrect authority
    0, // updated rate
    undefined,
    undefined,
    TOKEN_2022_PROGRAM_ID,
  );
  console.log("You should be able to update the interest.");
} catch (error) {
  console.error(
    `✅ - We expected this to fail because the owner is incorrect.`,
  );
}

Now run npx esrun src/index.ts. This is expected to fail and log out ✅ - We expected this to fail because the owner is incorrect.

Mint tokens and read interest rate

So we've tested updating the interest rate. How do we check that the accrued interest increases when an account mints more tokens? We can use the amountToUiAmount and getAccount helpers from the SPL library to help us achieve this.

Let's create a for loop that 5 times and mints 100 tokens per loop and logs out the new accrued interest:

// Log accrued interest
{
  // Logs out interest on token
  for (let i = 0; i < 5; i++) {
    const rate = await getInterestBearingMint({ connection, mint });
    await mintTo(
      connection,
      payer,
      mint,
      payerTokenAccount,
      payer,
      100,
      undefined,
      undefined,
      TOKEN_2022_PROGRAM_ID,
    );
 
    const tokenInfo = await getAccount(
      connection,
      payerTokenAccount,
      undefined,
      TOKEN_2022_PROGRAM_ID,
    );
 
    // Convert amount to UI amount with accrued interest
    const uiAmount = await amountToUiAmount(
      connection,
      payer,
      mint,
      tokenInfo.amount,
      TOKEN_2022_PROGRAM_ID,
    );
 
    console.log(
      `Amount with accrued interest at ${rate}: ${tokenInfo.amount} tokens = ${uiAmount}`,
    );
  }
}

You should see something similar to the logs below:

Amount with accrued interest at 32767: 100 tokens = 0.0000001000000207670422
Amount with accrued interest at 32767: 200 tokens = 0.0000002000000623011298
Amount with accrued interest at 32767: 300 tokens = 0.0000003000001246022661
Amount with accrued interest at 32767: 400 tokens = 0.00000040000020767045426
Amount with accrued interest at 32767: 500 tokens = 0.0000005000003634233328

As you can see, the interest rate increases as more tokens are minted!

Log mint config

If for some reason you need to retrieve the mint config state, we can utilize the getInterestBearingMintConfigState function we created earlier to display information about the interest bearing mint state.

// Log interest bearing mint config state
const mintAccount = await getMint(
  connection,
  mint,
  undefined,
  TOKEN_2022_PROGRAM_ID,
);
 
// Get Interest Config for Mint Account
const interestBearingMintConfig =
  await getInterestBearingMintConfigState(mintAccount);
 
console.log(
  "\nMint Config:",
  JSON.stringify(interestBearingMintConfig, null, 2),
);

This should log out something that looks similar to this:

Mint Config: {
  "rateAuthority": "Ezv2bZZFTQEznBgTDmaPPwFCg7uNA5KCvMGBNvJvUmS",
  "initializationTimestamp": 1709422265,
  "preUpdateAverageRate": 32767,
  "lastUpdateTimestamp": 1709422267,
  "currentRate": 0
}

Update rate authority and interest rate #

Before we conclude this lab, let's set a new rate authority on the interest bearing token and attempt to update the interest rate. We do this by using the setAuthority function and passing in the original authority, specifying the rate type (in this case it is 7 for InterestRate) and passing the new authority's public key.

Once we set the new authority, we can attempt to update the interest rate.

// Update rate authority and attempt to update interest rate with new authority
try {
  await setAuthority(
    connection,
    payer,
    mint,
    rateAuthority,
    AuthorityType.InterestRate, // Rate type (InterestRate)
    otherAccount.publicKey, // new rate authority,
    [],
    undefined,
    TOKEN_2022_PROGRAM_ID,
  );
 
  await updateRateInterestBearingMint(
    connection,
    payer,
    mint,
    otherAccount, // new authority
    10, // updated rate
    undefined,
    undefined,
    TOKEN_2022_PROGRAM_ID,
  );
 
  const newRate = await getInterestBearingMint({ connection, mint });
 
  console.log(
    `✅ - We expected this to pass because the rate can be updated with the new authority. New rate: ${newRate}`,
  );
} catch (error) {
  console.error(
    `You should be able to update the interest with new rate authority.`,
  );
}

This is expected to work and the new interest rate should be 10.

Thats it! We've just created an interest bearing token, updated the interest rate and logged the updated state of the token!

Challenge #

Create your own interest bearing token.

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