Utilization Rate

The utilization rate of a lending pool is the share of deposited assets currently borrowed. It is the input most lending protocols use to set both the borrow rate and the deposit rate: as more of the pool is lent out, borrowing gets more expensive and depositors earn more, which is meant to attract new deposits and discourage new loans until the balance recovers. Most designs bend the curve sharply past a target level, so rates rise slowly up to it and steeply beyond. The number that matters to a depositor is what utilization implies about withdrawal: a pool near full utilization has little idle liquidity, so exiting may mean waiting for a repayment or paying the sharply higher rate that eventually pulls one in. High utilization is a sign of demand and a sign of tighter exits at the same time.