# Utilization and borrowing rates: pricing a pool’s available funds 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. Evidence: [Aave V3 interest rate strategy](https://aave.com/docs/aave-v3/smart-contracts/interest-rate-strategy) Canonical: https://degreesofsatoshi.com/encyclopedia/utilization-and-borrowing-rates/ Published: 2026-10-02 Substantively modified: 2026-10-02 Independently verified by an automated reviewer: 2026-10-02T15:08:18.373Z AI-assisted research and drafting with a separate automated source-verification pass; no external expert or named human review is implied. ## Key facts - **Curve:** The cited Aave V3 strategy uses slopes around an optimal usage ratio. ([Aave V3 interest rate strategy](https://aave.com/docs/aave-v3/smart-contracts/interest-rate-strategy)) - **Debt growth:** Variable-debt balances accrue interest over time. ([Aave V3 tokenization](https://aave.com/docs/aave-v3/smart-contracts/tokenization)) - **Extra rewards:** Token incentive emissions are separate from borrowing interest. ([Aave V3 incentives](https://aave.com/docs/aave-v3/smart-contracts/incentives)) ## 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. Evidence: [Aave V3 interest rate strategy](https://aave.com/docs/aave-v3/smart-contracts/interest-rate-strategy) ## 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. Evidence: [Aave V3 interest rate strategy](https://aave.com/docs/aave-v3/smart-contracts/interest-rate-strategy) ## 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. Evidence: [Aave V3 tokenization](https://aave.com/docs/aave-v3/smart-contracts/tokenization); [Aave V3 incentives](https://aave.com/docs/aave-v3/smart-contracts/incentives); [Aave V3 interest rate strategy](https://aave.com/docs/aave-v3/smart-contracts/interest-rate-strategy) ## Questions ### 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. Evidence: [Aave V3 interest rate strategy](https://aave.com/docs/aave-v3/smart-contracts/interest-rate-strategy); [Aave V3 incentives](https://aave.com/docs/aave-v3/smart-contracts/incentives) ## Claims and scope ### utilization-and-borrowing-rates-quick-answer 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: {"collection":"defi","dataAsOf":null,"blockHeight":null} ### utilization-and-borrowing-rates-fact-curve Curve: The cited Aave V3 strategy uses slopes around an optimal usage ratio. Scope: {"collection":"defi","dataAsOf":null,"blockHeight":null} ### utilization-and-borrowing-rates-fact-debt-growth Debt growth: Variable-debt balances accrue interest over time. Scope: {"collection":"defi","dataAsOf":null,"blockHeight":null} ### utilization-and-borrowing-rates-fact-extra-rewards Extra rewards: Token incentive emissions are separate from borrowing interest. Scope: {"collection":"defi","dataAsOf":null,"blockHeight":null} ## Sources - [Aave V3 interest rate strategy](https://aave.com/docs/aave-v3/smart-contracts/interest-rate-strategy) — Aave. Reserve-dependent variable rates and slopes around the optimal usage ratio. Locator: Interest Rate Strategy; calculateInterestRates. Retrieved: 2026-10-02. - [Aave V3 tokenization](https://aave.com/docs/aave-v3/smart-contracts/tokenization) — Aave. Supply receipts accrue interest and debt tokens record principal plus interest. Locator: AToken; VariableDebtToken. Retrieved: 2026-10-02. - [Aave V3 incentives](https://aave.com/docs/aave-v3/smart-contracts/incentives) — Aave. Reward distribution and emission schedules are separate from lending interest. Locator: RewardsController; configureAssets; claimRewards. Retrieved: 2026-10-02. ## Revision history - 2026-10-02: First publication after primary-source research and independent automated verification. ## Cite this entry 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/