What is Utilization Rate?

Utilization rate measures the percentage of supplied assets in a lending pool that are currently borrowed. It's a crucial metric that determines interest rates, liquidity availability, and protocol health in DeFi lending.

Utilization Rate Formula

Utilization = Total Borrowed / Total Supplied × 100%

Example: $80M borrowed from $100M supplied = 80% utilization

Impact on Interest Rates

Most lending protocols use utilization-based interest rate curves:

Low Utilization (0-40%)

Low borrow rates to encourage borrowing
Low supply rates
Excess liquidity available

Optimal Utilization (40-80%)

Balanced rates
Good returns for suppliers
Reasonable borrowing costs

High Utilization (80-100%)

Rates spike dramatically
Discourages borrowing
Incentivizes more supply
Potential withdrawal issues

The "Kink" Model

Aave and Compound use kinked interest rate curves:

Gradual rate increase below optimal
Sharp rate increase above optimal
Optimal point typically 80%

Example Rates (USDC):

50% utilization: 3% borrow APR
80% utilization: 5% borrow APR
95% utilization: 50%+ borrow APR

Monitoring Utilization

For Suppliers

High utilization = higher yields
Very high = withdrawal risk
Monitor before large withdrawals

For Borrowers

Low utilization = cheaper borrowing
High utilization = expensive
Watch for rate spikes

Protocol-Specific Targets

Aave: 80% optimal
Compound: Varies by asset
Morpho: Optimizes matching efficiency

Real-Time Data

Track utilization on:

Protocol dashboards
DeFi Llama
Token Terminal

Utilization Rate