Skip to article
Degrees of SatoshiFollow the connections.
SearchTrace an address
Degrees of Satoshi/ Encyclopedia

Encyclopedia DeFi · Entry 61

Utilization and borrowing rates: pricing a pool’s available funds

AI-assisted research · separate automated verificationCorrections

Theme
DeFi
Sources
3 cited records
Reading time
About 3 minutes
Automated verification
Substantive update
In this article

At a glance

Key facts

Key facts for Utilization and borrowing rates: pricing a pool’s available funds
FactDetailSource
CurveThe cited Aave V3 strategy uses slopes around an optimal usage ratio.[1]
Debt growthVariable-debt balances accrue interest over time.[2]
Extra rewardsToken incentive emissions are separate from borrowing interest.[3]
01

Use the denominator defined by the market

In a simplified reserve with 600 borrowed units and 400 available units, utilization is 600 ÷ (600 + 400) = 60%. Borrowing another 100 leaves 700 borrowed and 300 available, so utilization becomes 70%.

Real accounting can include reserves, unbacked amounts or other adjustments. The simple cash-plus-debt expression illustrates the concept; it should not silently replace a protocol’s implementation when calculating a live metric.

02

Why a kink can make the rate rise faster

A piecewise rate curve can increase gently at lower utilization and steeply when available cash is scarce. In the cited Aave V3 model, the configured optimal usage ratio separates those segments. It is a parameter, not a law of lending.

For a hypothetical reserve with 60% utilization, a 10% borrower rate and a 10% reserve share of interest, a simplified supply rate is 10% × 60% × 90% = 5.4%. This assumes one uniform debt rate and no incentives; it is not an observed Aave rate.

03

An annualized number is not a fixed future return

A variable rate changes as reserve state or settings change. Actual interest over a period depends on the sequence of rates and the implementation’s accrual method. A displayed annualized percentage is not evidence that the same rate persists for a year.

Keep borrowing interest, supply interest, reward-token incentives and compounding assumptions separate. A token reward can have a changing market value even when its emission schedule is known. Reporting a combined percentage without those components hides why it can change.

Direct answers

Questions people ask

Why is the supply rate lower than the borrow rate?

In a simplified pooled market, borrowers pay interest on borrowed assets while that income is spread over suppliers’ larger total claims, often after a reserve share. Incentive tokens can add a separate reward component.

Inspect the evidence

The answer and key facts have stable claim links. These records retain the scope and qualification when reused.

Utilization measures how much of a lending reserve’s usable funding is borrowed under its accounting rules. Aave V3 interest strategies use utilization-dependent rate curves with a steeper segment beyond a configured point. Supply interest is different from the borrower’s rate because only borrowed funds earn that interest.

Scope: DeFi. Verification: verified · 2026-10-02T15:08:18.373Z.

Link to this claim
Curve: The cited Aave V3 strategy uses slopes around an optimal usage ratio.

Scope: DeFi. Verification: verified · 2026-10-02T15:08:18.373Z.

Link to this claim
Debt growth: Variable-debt balances accrue interest over time.

Scope: DeFi. Verification: verified · 2026-10-02T15:08:18.373Z.

Link to this claim
Extra rewards: Token incentive emissions are separate from borrowing interest.

Scope: DeFi. Verification: verified · 2026-10-02T15:08:18.373Z.

Link to this claim
Revision history
  1. — First publication after primary-source research and independent automated verification.

Source register

Sources and references

Retrieval dates and locators are recorded individually.
  1. Aave V3 interest rate strategyAave

    Reserve-dependent variable rates and slopes around the optimal usage ratio.

    Locator: Interest Rate Strategy; calculateInterestRates · Version / scope: Aave V3 · Retrieved: 2026-10-02Open source
  2. Aave V3 tokenizationAave

    Supply receipts accrue interest and debt tokens record principal plus interest.

    Locator: AToken; VariableDebtToken · Version / scope: Aave V3 · Retrieved: 2026-10-02Open source
  3. Aave V3 incentivesAave

    Reward distribution and emission schedules are separate from lending interest.

    Locator: RewardsController; configureAssets; claimRewards · Version / scope: Aave V3 · Retrieved: 2026-10-02Open source
How this article was made

Research and drafting use AI assistance. A separate automated review checks claims against primary sources; no external expert or named human review is implied. Publication, substantive editing, source retrieval and verification are recorded separately. This version was independently checked by an automated reviewer on 2 October 2026.

Editorial method and corrections

Degrees of Satoshi editorial project. “Utilization and borrowing rates: pricing a pool’s available funds.” Published 2026-10-02; updated 2026-10-02. https://degreesofsatoshi.com/encyclopedia/utilization-and-borrowing-rates/