Pool utilization changes interest rates because it measures how scarce the lendable asset has become: as a larger share is borrowed, the protocol raises the borrow rate to attract deposits and repayments.
These figures show the basic relationship:
Utilization is the borrowed amount divided by the pool’s total supplied liquidity. In common lending-pool accounting, the equivalent formula is borrowed assets divided by borrowed assets plus cash still sitting in the pool. If a pool holds 1,000 USDC and users have borrowed 600 USDC, utilization is 60%.
That percentage is a scarcity signal, not a measure of borrower credit quality. A borrower may still need collateral and face liquidation if that collateral loses value, but those rules are separate from the utilization curve. Utilization answers a narrower question: how much of this asset can a lender withdraw right now without waiting for a borrower to repay?
A Universal Bridge route between networks can move the asset into the network where the lending pool lives. That solves a location problem, but it does not create spare liquidity inside a heavily borrowed pool. LayerZero Protocol, Across Protocol and Wormhole Protocol can help coordinate cross-chain messages or asset movement; once the asset reaches a lending market, that market’s own utilization determines its variable rate.
The interest-rate model is a smart-contract rule that converts utilization into a borrow rate. Below the market’s target, the curve usually rises gradually. Above the target, it uses a much steeper second slope, often called a jump-rate or kink model.
The steep section protects the liquidity buffer. At 95% utilization, a lender who withdraws may depend on another user repaying immediately. A high borrow rate creates two counterforces: existing borrowers have a reason to repay, and new suppliers have a reason to deposit. The protocol does not need an operator to call every borrower or ration every withdrawal; the price of liquidity does the work.
For example, suppose a market has a 0% base rate, a 4% borrow rate at its 80% target, and a much steeper second slope above that target. A move from 40% to 60% utilization may increase the rate modestly. A move from 80% to 90% can increase it dramatically because the last 20% of liquidity is being priced as a safety reserve rather than cheap working capital.
The exact target is not universal. Aave markets use governance-set interest-rate strategies, while Compound-style jump-rate models use the same broad idea. Morpho markets use an interest-rate model selected when the market is created; its AdaptiveCurveIRM is designed around a high target utilization while still responding sharply to short-term liquidity changes. The parameters differ by asset because USDC, ETH and a thinly traded token do not have the same withdrawal behavior or demand.
Supply yield usually comes from borrower interest, so it depends on both the borrow rate and utilization. A simplified relationship is:
Supply rate = borrow rate × utilization × (1 − reserve factor).
The reserve factor is the share retained by the protocol rather than paid to suppliers. If a pool’s borrow rate is 10%, utilization is 60%, and the reserve factor is 10%, the supplier rate is approximately 5.4% before any other market-specific adjustments. The supplier does not earn 10% because only the borrowed portion of the pool is generating interest.
This also explains why a very high borrow rate does not automatically mean an equally high deposit yield. At 95% utilization, the multiplication by utilization makes supply yield attractive, but the reserve factor and other accounting rules still create a spread between what borrowers pay and suppliers receive.