What is Utilization Rate


In the DeFi market, the utilization rate refers to the percentage of actually borrowed funds in the lending pool compared to the total funds available for borrowing. This rate is usually expressed as a percentage and is an important indicator that reflects the liquidity situation in the pool.

Utilization Rate = Total Borrows / Total Liquidity

For example, if $8 million out of a $10 million lending pool is being borrowed, then the utilization rate of this pool is 80%.

Utilization rate and APY on Compound Finance

A higher utilization rate indicates strong demand for loans from the market, resulting in a supply shortage in the pool. At this point, the lending rate in the pool may also be high for borrowers, they may therefore face high borrowing costs or even be unable to obtain a loan. On the other hand, for lenders who provide liquidity in the pool, high-interest rates mean higher income.

The utilization rate is also an important reference indicator for lending & borrowing platforms. When the utilization rate is too high, the platform may face a liquidity crisis or even a run on the platform. On the other hand, too low utilization rates may lead to the platform's inability to generate profits through sufficient fund efficiency, which can affect the operational status.

Therefore, understanding the trend of utilization rate is beneficial for users to better grasp market trends and trade and invest more wisely and rationally.

You might also be interested in the following articles



What else do you want to learn?


In This Article

Use TokenInsight App All Crypto Insights Are In Your Hands