What a bank would do — and what you do instead
At a bank, the lending desk decides who borrows and keeps the spread between what borrowers pay and what savers earn. When you supply assets to a lending pool or trading pool, you are taking the desk’s seat — and its risks. Understanding how the desk earns its money tells you where your yield comes from, when it will shrink and when you might not be able to get your money back quickly.
A real example
On September 24, 2026, Aave V3’s Ethereum USDC market had about $2.4B supplied and 92.7% of it lent out. Borrowers paid 4.34%; lenders received 3.62% (variable).
Why lenders get less
- Only the borrowed part of the pool pays interest — here 92.7%. The other 7.3% earns nothing but keeps withdrawals possible.
- The protocol keeps a reserve factor, a slice of interest that funds its treasury and safety buffers.
- Roughly: lender rate ≈ borrower rate × utilization × (1 − reserve factor).
The interest-rate curve
Protocols set a “kink” — a target utilization. Below it, rates rise gently. Above it, rates rise steeply to pull in new lenders and push borrowers to repay. That is why rates spike when everyone wants to borrow the same asset.
Why 100% utilization matters to you
If every dollar is lent out, there is nothing left for lenders to withdraw until borrowers repay or new lenders arrive. Your balance is still there, but you may have to wait. High rates are partly payment for that liquidity risk.
Frequently asked questions
Why did my rate drop overnight?
Usually because borrowers repaid or new lenders arrived, lowering utilization.
Is a 95% utilized pool dangerous?
Not necessarily, but it pays more partly because withdrawals could be slower. Size your position accordingly.
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