Utilization Rate Equilibrium

Utilization Rate Equilibrium is the target state where the amount of borrowed assets relative to total supply is optimized for both profitability and liquidity. If the utilization rate is too high, there is a risk of liquidity exhaustion, where lenders cannot withdraw their funds.

If it is too low, the protocol is inefficient, as capital is sitting idle. Governance uses interest rate models to influence this rate, pushing it toward an optimal range.

This balance is critical for the health of lending markets. By adjusting the interest rate curve, the protocol can nudge users to either borrow more or repay their loans, effectively managing the utilization rate.

Achieving this equilibrium ensures that the protocol remains a stable and reliable source of credit and yield. It is a key metric for monitoring the economic efficiency of the platform.