Lending Pool Exhaustion

Lending pool exhaustion occurs when all available liquidity in a lending protocol is borrowed, meaning no new loans can be taken out and existing borrowers may face difficulty managing their positions. This usually happens during market spikes when everyone wants to borrow stablecoins to buy assets or cover margin.

It leads to a massive spike in interest rates, which can trigger further liquidations. It is a clear sign of a market under extreme stress.

Protocols often have mechanisms to encourage more supply when pools are near exhaustion, but these may not work during panic. It represents a hard limit on the market's ability to leverage.