Utilization Rate

Utilization rate is the share of deposited assets currently borrowed. If $80 million is borrowed from $100 million deposited, utilization is 80%. Lenders like high utilization for yield. Too high and depositors cannot withdraw because funds are lent out. Rate curves solve this by jumping at high utilization. Below 80% rates stay modest.

Near 99% they can hit 100%+ APY to force repayments and attract deposits.

The kink where rates accelerate depends on the asset. Stablecoin pools often target 85-90% utilization. Volatile assets target 70-80% because price shocks trigger withdrawals. Watch utilization to guess rate moves and whether you can exit. In stress, utilization spikes as traders borrow for leverage or cash, which can freeze withdrawals and spike rates.

Utilization rate measures the percentage of deposited assets currently borrowed in a lending protocol, serving as the key input for dynamic interest rate adjustments. This metric balances competing needs: lenders want high utilization for better yields, but too-high utilization creates withdrawal risk where depositors can't access their funds because they're all lent out.

A typical curve might keep rates low below 80% utilization, then sharply increase them above that threshold. Utilization is borrowed divided by supplied. Too high and suppliers cannot withdraw. The kink in Aave's curve exists to stop that.