---
title: Borrow Rate
description: Page on Vedang Vatsa's site: https://veda.ng/glossary/borrow-rate
canonical: https://veda.ng/glossary/borrow-rate
last_updated: 2026-10-03
type: text/markdown
---
# Borrow Rate

Source: https://veda.ng/glossary/borrow-rate
Author: Vedang Vatsa (https://veda.ng/about)

Borrow rate is the interest rate paid to borrow assets from a DeFi lending protocol, dynamically adjusting based on supply and demand within each lending pool. The mechanism: protocols use interest rate curves that increase rates as utilization rises. When 80% of deposited ETH is borrowed, the borrow rate might be 5% APY; at 95% utilization, it might spike to 50% APY. This dynamic pricing balances the market: high rates encourage borrowers to repay and attract new lenders, reducing utilization. Low rates encourage borrowing when capital is abundant. Most DeFi borrow rates are variable, changing block-by-block as utilization fluctuates. This means your cost of borrowing can change sharply during volatile periods, a 2% rate today might become 20% during a liquidity crunch. Some protocols offer fixed-rate borrowing through separate mechanisms, but variable rates dominate. Borrow rates fund the supply-side yields that attract depositors: the protocol takes the difference between borrow rate and supply rate as a spread. Comparing borrow rates across protocols helps find the cheapest capital, though rates can change by the time you execute. Flash loan rates are even more dynamic, often priced per-transaction based on available liquidity. Aave's borrow rate rises with utilization. More of the pool borrowed, higher the rate. That is the control loop.

Glossary index: https://veda.ng/glossary