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Add Solana Playground
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---
date: Sep 01, 2023
date: Dec 7, 2023
title: How to use the Interest-Bearing extension
description:
"Interest-bearing tokens are tokens that can either increase or decrease in
Expand All @@ -17,152 +17,280 @@ altRoutes:
- /developers/guides/interest-bearing-tokens
---

Interest-bearing tokens can either increase or decrease in value over time.
Similar to how a bank savings account or a loan accumulates interest.
The `InterestBearingConfig` extension enables you to set an interest rate stored
on the Mint Account. Interest is compounded continuously, based on the network's
timestamp. However, this interest accrual is only a
[calculation](https://github.com/solana-labs/solana-program-library/blob/master/token/program-2022/src/extension/interest_bearing_mint/mod.rs#L85)
based on the set interest rate, and does not involve minting new tokens. In
other words, the accrued interest is simply a visual UI conversion, but the
underlying token quantity remains unchanged. This design eliminates the need for
frequent rebase or update operations to adjust for accrued interest.

The Interest-bearing extension allows you to set an interest rate on a token
calculated continuously based on the network's timestamp.
In this guide, we'll walk through an example of using Solana Playground. Here is
the [final script](https://beta.solpg.io/65724856fb53fa325bfd0c53).

## How does it work?
## Getting Started

The extension offers a new way to represent the value of the tokens. No new
tokens are created/minted; only the displayed value of the token increases. It's
just a visual representation. Think of it as seeing your bank balance increase
due to interest, but no new physical money is added/created.
Start by opening this Solana Playground
[link](https://beta.solpg.io/656e19acfb53fa325bfd0c46) with the following
starter code.

This guide walks you through how to use the Interest-bearing extension to add an
interest rate to a token.
```javascript
// Client
console.log("My address:", pg.wallet.publicKey.toString());
const balance = await pg.connection.getBalance(pg.wallet.publicKey);
console.log(`My balance: ${balance / web3.LAMPORTS_PER_SOL} SOL`);
```

Let's get started!
If it is your first time using Solana Playground, you'll first need to create a
Playground Wallet and fund the wallet with devnet SOL.

## Install dependencies
To get devnet SOL, run the `solana airdrop` command in the Playground's
terminal, or visit this [devnet faucet](https://faucet.solana.com/).

```shell
npm i @solana/web3.js @solana/spl-token
```
solana airdrop 5
```

Install the `@solana/web3.js` and `@solana/spl-token` packages.

## Setting up
Once you've created and funded the Playground wallet, click the "Run" button to
run the starter code.

Let's start by setting up our script to create a new token mint.
## Add Dependencies

First, we will need to:
Let's start by setting up our script. We'll be using the `@solana/web3.js` and
`@solana/spl-token` libraries.

- Establish a connection to the devnet cluster
- Generate a payer account and fund it
- Create a new token mint using the Token 2022 Program
Replace the starter code with the following:

```javascript
import {
clusterApiUrl,
Connection,
Keypair,
LAMPORTS_PER_SOL,
SystemProgram,
Transaction,
clusterApiUrl,
sendAndConfirmTransaction,
} from "@solana/web3.js";
import {
amountToUiAmount,
createInterestBearingMint,
TOKEN_2022_PROGRAM_ID,
ExtensionType,
updateRateInterestBearingMint,
createInitializeInterestBearingMintInstruction,
createInitializeMintInstruction,
getMintLen,
TOKEN_2022_PROGRAM_ID,
amountToUiAmount,
getInterestBearingMintConfigState,
getMint,
} from "@solana/spl-token";

// We establish a connection to the cluster
// Playground wallet
const payer = pg.wallet.keypair;

// Connection to devnet cluster
const connection = new Connection(clusterApiUrl("devnet"), "confirmed");

// Next, we create and fund the payer account
const payer = Keypair.generate();
const airdropSignature = await connection.requestAirdrop(
payer.publicKey,
LAMPORTS_PER_SOL,
);
await connection.confirmTransaction({
signature: airdropSignature,
...(await connection.getLatestBlockhash()),
});
// Transaction signature returned from sent transaction
let transactionSignature: string;
```

## Mint setup
## Mint Setup

Next, let's configure the properties of our token mint and generate the
necessary authorities.
First, let's define the properties of the Mint Account we'll be creating in the
following step.

```javascript
const mintAuthority = Keypair.generate();
const freezeAuthority = Keypair.generate();

// rateAuthority: The authority that can update the interest rate
const rateAuthority = Keypair.generate();
// Generate new keypair for Mint Account
const mintKeypair = Keypair.generate();
// Address for Mint Account
const mint = mintKeypair.publicKey;
// Decimals for Mint Account
const decimals = 2;
// Authority that can mint new tokens
const mintAuthority = pg.wallet.publicKey;
// Authority that can update the interest rate
const rateAuthority = pg.wallet.keypair;
// Interest rate basis points (100 = 1%)
// Max value = 32,767 (i16)
const rate = 32_767;
```

// rate: The initial interest rate
const rate = 50;
const decimals = 0;
Next, let's determine the size of the new Mint Account and calculate the minimum
lamports needed for rent exemption.

```javascript
// Size of Mint Account with extension
const mintLen = getMintLen([ExtensionType.InterestBearingConfig]);
// Minimum lamports required for Mint Account
const lamports = await connection.getMinimumBalanceForRentExemption(mintLen);
```

With Token Extensions, the size of the Mint Account will vary based on the
extensions enabled.

## Build Instructions

Next, let's build the set of instructions to:

- Create a new account
- Initialize the `InterestBearingConfig` extension
- Initialize the remaining Mint Account data

First, build the instruction to invoke the System Program to create an account
and assign ownership to the Token Extensions Program.

```javascript
// Instruction to invoke System Program to create new account
const createAccountInstruction = SystemProgram.createAccount({
fromPubkey: payer.publicKey, // Account that will transfer lamports to created account
newAccountPubkey: mint, // Address of the account to create
space: mintLen, // Amount of bytes to allocate to the created account
lamports, // Amount of lamports transferred to created account
programId: TOKEN_2022_PROGRAM_ID, // Program assigned as owner of created account
});
```

We create various authorities to manage different aspects of our mint (mint,
freeze and rate authority), and then set our initial interest rate.
Next, build the instruction to initialize the `InterestBearingConfig` extension
for the Mint Account.

```javascript
// Instruction to initialize the InterestBearingConfig Extension
const initializeInterestBearingMintInstruction =
createInitializeInterestBearingMintInstruction(
mint, // Mint Account address
rateAuthority.publicKey, // Designated Rate Authority
rate, // Interest rate basis points
TOKEN_2022_PROGRAM_ID, // Token Extension Program ID
);
```

## Initialize an interest-bearing account on a mint
Lastly, build the instruction to initialize the rest of the Mint Account data.
This is the same as with the original Token Program.

```javascript
const mint = await createInterestBearingMint(
connection, // connection to use
payer, // payer of the transaction fees
mintAuthority.publicKey, // account that will control minting
freezeAuthority.publicKey, // optional account that can freeze token accounts
rateAuthority.publicKey, // account that can update the rate
rate, // the initial interest rate
decimals, // decimals for this mint
mintKeypair, // optional keypair
undefined, // options for confirming the transaction
TOKEN_2022_PROGRAM_ID, // SPL token program account
// Instruction to initialize Mint Account data
const initializeMintInstruction = createInitializeMintInstruction(
mint, // Mint Account Address
decimals, // Decimals of Mint
mintAuthority, // Designated Mint Authority
null, // Optional Freeze Authority
TOKEN_2022_PROGRAM_ID, // Token Extension Program ID
);
```

As a result, we've created a new token mint with the interest-bearing extension
applied.
## Send Transaction

## View interest generated
Next, let's add the instructions to a new transaction and send it to the
network. This will create a Mint Account with the `InterestBearingConfig`
extension enabled.

We use the `amountToUiAmount` helper function from the `@solana/spl-token`
library to view the interest generated.
```javascript
// Add instructions to new transaction
const transaction = new Transaction().add(
createAccountInstruction,
initializeInterestBearingMintInstruction,
initializeMintInstruction,
);

// Send transaction
transactionSignature = await sendAndConfirmTransaction(
connection,
transaction,
[payer, mintKeypair], // Signers
);

console.log(
"\nCreate Mint Account:",
`https://solana.fm/tx/${transactionSignature}?cluster=devnet-solana`,
);
```

Run the script by clicking the `Run` button. You can then inspect the
transaction details on SolanaFM.

## Update Interest Rate

The designated Rate Authority can then update the interest rate on the Mint
Account at any time.

```javascript
const accountBalance = 1000;
// New interest rate in basis points
const updateRate = 0;
// Update interest rate on Mint Account
transactionSignature = await updateRateInterestBearingMint(
connection,
payer, // Transaction fee payer
mint, // Mint Account Address
rateAuthority, // Designated Rate Authority
updateRate, // New interest rate
undefined, // Additional signers
undefined, // Confirmation options
TOKEN_2022_PROGRAM_ID, // Token Extension Program ID
);

const uiAmount = await amountToUiAmount(
connection, // connection to use
payer, // payer of the transaction fees
mint, // token mint
accountBalance, // amount of tokens to be converted to UI amount
TOKEN_2022_PROGRAM_ID, // Token program ID
console.log(
"\nUpdate Rate:",
`https://solana.fm/tx/${transactionSignature}?cluster=devnet-solana`,
);
```

## Fetch Interest Config State

Next, let's check the updated interest rate by fetching the Mint Account data.

```javascript
// Fetch Mint Account data
const mintAccount = await getMint(
connection,
mint, // Mint Account Address
undefined, // Optional commitment
TOKEN_2022_PROGRAM_ID, // Token Extension Program ID
);

// Get Interest Config for Mint Account
const interestBearingMintConfig = await getInterestBearingMintConfigState(
mintAccount, // Mint Account data
);

console.log(
"\nMint Config:",
JSON.stringify(interestBearingMintConfig, null, 2),
);
```

## Update the interest rate
<!-- stop -->

## Calculate Accrued Interest

The `RateAuthority` can update the interest rate on the mint at any time.
Lastly, let's calculate the interest accrued for a given amount. Note that this
calculation can be performed independently for any amount, without the need for
minting tokens.

```javascript
const updateRate = 50;
const tx = await updateRateInterestBearingMint(
connection, // connection to use
payer, // payer of the transaction fee
mint, // public key of the mint
rateAuthority, // account that can update the rate
updateRate, // the initial interest rate
[], // signing accounts
undefined, // options for confirming the transaction
TOKEN_2022_PROGRAM_ID, // Token program ID
// Wait 1 second
sleep(1000);

// Amount to convert
const amount = 100;
// Convert amount to UI amount with accrued interest
const uiAmount = await amountToUiAmount(
connection, // Connection to the Solana cluster
payer, // Account that will transfer lamports for the transaction
mint, // Address of the Mint account
amount, // Amount to be converted
TOKEN_2022_PROGRAM_ID, // Token Extension Program ID
);

console.log("\nAmount with Accrued Interest:", uiAmount);
```

## Conclusion
Run the script by clicking the `Run` button. You can then inspect the
transaction details on SolanaFM and view the data logged in the Playground
terminal.

The Interest-bearing extension for Token 2022 on Solana introduces a simple
mechanism for tokens to increase/decrease in value over time.
## Conclusion

By seamlessly integrating tools commonly found in traditional finance, this
innovation broadens Solana's capabilities, bridging the gap between conventional
financial instruments and the world of blockchain.
The `InterestBearingConfig` extension introduces a simple mechanism for tokens
to increase or decrease in value over time. By seamlessly integrating tools
commonly found in traditional finance, this innovation broadens Solana's
capabilities, bridging the gap between conventional financial instruments and
the world of blockchain.

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