Stablecoin Lending Rates: Supply-Demand Curves

A stablecoin lending rate on a pooled protocol is not a quote. A smart contract recomputes it continuously from one input, utilization, which is the share of the pool that is currently borrowed. Below a set point the rate rises slowly; above it, the rate climbs steeply. That is why a high advertised yield usually says more about borrowing pressure and exit risk than about opportunity.

Key takeaways

On Aave, the supplier rate is roughly borrow rate × utilization × (1 − reserve factor).
Above the kink the borrow rate rises dozens of times faster per point of utilization, and at 100% utilization there is no idle cash to withdraw.
In a snapshot taken at 10:35 UTC on 20 October 2026, the Aave USDC supply rate (3.79%) was below the three-month Treasury bill yield (4.08% to 4.26% on 16 October), and governance changes curve settings often.

How utilization sets the rate

Lenders deposit stablecoins into a shared pool and borrowers draw from it. Utilization is total borrowed divided by total supplied: $80 borrowed from a $100 pool is 80%. Compound's documentation defines it the same way, as TotalBorrows divided by TotalSupply, and says its rate models are set by governance.

Both protocols use a two-slope curve with a bend, called the kink or optimal point. Aave's documentation describes one slope up to the optimal usage ratio and a second slope above it, and defines the reserve factor as the portion of interest that goes to the market's treasury. The exact arithmetic is in Aave's open-source interest rate strategy contract:

Below optimal:  borrow rate = base + slope1 × (U ÷ optimal)
Above optimal:  borrow rate = base + slope1 + slope2 × (U − optimal) ÷ (1 − optimal)

supplier rate ≈ borrow rate × U × (1 − reserve factor)

U = utilization (borrowed ÷ supplied)
base = rate at zero utilization
slope1, slope2 = added rate below and above the kink
reserve factor = share of borrower interest kept by the protocol

The supplier line is approximate because the contract's divisor also counts any "unbacked" supply; when that is zero, the formula is exact.

Compound III works differently. Its documentation gives separate supply and borrow curves, each with its own kink, base and two slopes, but the shape is the same: gentle below the kink, steep above.

Live parameters, October 2026

A 13 October 2026 risk-steward post recommended raising slope 1 on Aave v3 Core USDC and USDT from 4.40% to 4.50%, keeping the 94% optimal point; the contracts showed 4.5% on 20 October. The other values, and Compound's, were read from the Ethereum contracts at block 26233234 (20 October 2026, 10:35 UTC), via the Aave address book and the Compound USDC contract on Etherscan.

Market (Ethereum)	Kink / optimal	Base	Slope 1 (low)	Slope 2 (high)	Reserve factor
Aave v3 USDC and USDT (same settings)	94%	0%	4.5%	10%	10%
Compound III USDC, borrow side	90%	1.5%	about 2.78%	360%	not part of the formula
Compound III USDC, supply side	90%	0%	3.6%	319.6%	not part of the formula

Compound's slopes apply per unit of utilization, so the 360% high slope means each extra percentage point above 90% adds 3.6 points to the borrow rate. The same block gave this snapshot, in APR as the contracts report it (APY displays run slightly higher):

Market	Utilization	Borrow rate	Supplier rate
Aave v3 USDC	93.78%	4.49%	3.79%
Aave v3 USDT	85.28%	4.08%	3.13%
Compound III USDC	90.73%	6.62%	5.56%

As a check, Aave USDC at 93.78% gives 4.5% × 0.9378 ÷ 0.94 = 4.49% borrow, and 4.49% × 0.9378 × 0.9 = 3.79% supply, the same current rates that Aavescan's USDC page showed at that time. Compound's pool sat 0.73 points past its kink, which lifts the borrow rate from 4.0% at the kink to 4.0% + 3.6 × 0.727 ≈ 6.62%.

These settings move: a governance thread from April 2026 estimated USDC at about 3.5% slope 1 and a 92% optimal point, and a 2 September 2026 post recommended raising slope 1 from 4.10% to 4.30%. Check current values before relying on any figure here.

Why rates spike above the kink

Illustrative example: a hypothetical stablecoin pool with a 0% base rate, slope 1 of 4%, slope 2 of 60%, a kink at 90% utilization and a 10% reserve factor. These are not any real market's settings; slope 2 is steeper than Aave's so the effect is easy to see.

Utilization	Borrow rate	Supplier rate	How it is computed
50%	2.22%	1.00%	4% × 0.50 ÷ 0.90; then × 0.50 × 0.90
90% (kink)	4.00%	3.24%	4% × 0.90 ÷ 0.90; then × 0.90 × 0.90
95%	34.00%	29.07%	4% + 60% × (0.05 ÷ 0.10); then × 0.95 × 0.90
100%	64.00%	57.60%	4% + 60% × (0.10 ÷ 0.10); then × 1.00 × 0.90

Moving from 50% to 90% utilization raises the borrow rate by 1.78 points. Moving a further 5 points, from 90% to 95%, raises it by 30 points, because slope 2 is spread across only the last 10% of the range: every point above the kink adds 6 points of borrow rate. This is intended: a borrower paying 34% has reason to repay, a lender who could earn 29% has reason to deposit, and both push utilization back down.

Real curves follow the same shape. At Aave's USDC and USDT settings the borrow rate is 4.5% at the 94% kink and 14.5% at 100%; at Compound's USDC settings it is 4.0% at the kink and 40.0% at 100%. Rates at the top of the curve are not a free gain: they appear when borrowers have drawn nearly all the cash, which is the same condition that limits withdrawals.

Where yields sit against T-bills

A benchmark helps separate borrowing demand from extra risk. FRED gives two three-month Treasury bill figures for 16 October 2026: DTB3, the secondary market rate on a discount basis, at 4.08%, and DGS3MO, the constant-maturity yield on an investment basis, at 4.26%. They are different quoting conventions, so treat the pair as a range.

Against it, the 20 October snapshot showed Aave USDC supply at 3.79%, Aave USDT at 3.13% and Compound USDC at 5.56%. A Treasury bill carries the credit of the US government; a pool deposit carries the risks in the next section. The gap above the bill yield is the extra pay for those risks, and whether it is enough is a judgement each lender makes; a supply rate below the bill yield offers no extra pay for them. To see what a gap of half a point means in dollars over a year, you can enter both rates in the investment growth calculator, remembering that a pool rate is variable and rarely holds for long.

Risks the curve does not remove

Liquidity at 100% utilization

Withdrawals come from idle cash in the pool. The April 2026 Aave governance thread shows what happens when there is almost none: it cited Aavescan data of 99.87% utilization on the Ethereum USDC reserve, about $1.89 billion supplied and borrowed, under $3 million available to withdraw, a 13.82% variable borrow rate and a 12.42% supply rate. The proposed curve change drew objections, and the thread records no vote or execution. High utilization on its own does not mean deposits are lost, but they can be hard to withdraw until borrowers repay or new deposits arrive.

Governance, contracts, oracles and depeg

Governance changes: kink, slopes and reserve factor change by governance or risk-steward action, as the posts above show.
Smart-contract risk: Aave's own risk page says smart contracts can contain bugs or vulnerabilities in the protocol code and the underlying reserve tokens; an exploit can affect deposits whatever the curve says.
Oracle risk: the same page notes that relying on third-party price feeds risks incorrect valuations if an oracle fails or is compromised. Mispriced collateral can lead to wrongful liquidations or bad debt in the pool.
Depeg risk: the deposit is in a stablecoin, so if that coin trades below its target value, a withdrawal returns coins worth less than the dollars originally paid for them.

The FTC's consumer guidance (May 2022) states that cryptocurrency held in accounts is not insured by a government the way dollars in an FDIC-insured bank account are. None of these risks is priced into the headline rate on its own.

Law and centralized lender failures

What the GENIUS Act text says

Section 4(a)(11) of the GENIUS Act (Public Law 119-27, enacted 18 July 2025), headed "Prohibition on interest," says that no permitted payment stablecoin issuer or foreign payment stablecoin issuer shall pay the holder of any payment stablecoin any form of interest or yield, whether in cash, tokens or other consideration, solely in connection with the holding, use or retention of the coin. The ban is addressed to those issuers and does not mention lending protocols or platforms. Under Section 20, the Act takes effect on the earlier of 18 months after enactment (18 January 2027) or 120 days after federal regulators issue final implementing regulations. This article does not assess how the provision applies to any particular arrangement.

What agencies documented about centralized lenders

A centralized platform's yield is a company's promise, not a published curve. The SEC's 14 February 2022 press release said BlockFi agreed, without admitting or denying the findings, to pay a $50 million penalty to the SEC and another $50 million to 32 states over its BlockFi Interest Accounts. The SEC found the accounts were unregistered securities and that BlockFi's website made a false and misleading statement about the risk level of its loan portfolio for more than two years.

The FTC's 13 July 2023 release on Celsius said the company filed for bankruptcy in July 2022 and alleged it misappropriated more than $4 billion of customer deposits, falsely promised withdrawals at any time and a $750 million insurance policy, and advertised rewards of up to 18% APY. Celsius agreed to a permanent ban and a $4.7 billion judgment, suspended so remaining assets could be returned through bankruptcy. A 20 July 2026 FTC release said three Celsius founders would pay $16.5 million in total; the orders take effect once the court approves them, and one was still a proposed order.

The SEC's February 2022 investor bulletin adds that crypto interest-bearing accounts are not as safe as bank or credit union deposits. These facts concern company-run accounts, not on-chain pools, which carry the different risks listed above.

Frequently asked questions

Does Compound use the same supplier-rate formula as Aave?

No. Compound III publishes a separate supply curve with its own kink, base and slopes; on Aave, the supplier rate is derived from the borrow rate.

Is the rate fixed once I deposit?

No. Compound's documentation says interest accrues every second using the block timestamp, and the rate follows current utilization. On either protocol, the rate you see at deposit can differ an hour later.

Does the GENIUS Act make lending stablecoins illegal?

Section 4(a)(11) addresses stablecoin issuers paying holders solely for holding, using or retaining a coin, and the Act takes effect on its Section 20 date. It does not name lending protocols or prohibit lending. Whether a specific arrangement is affected is a legal question the statute text alone does not settle.

Are pool deposits insured like bank deposits?

No government insurance applies. The FTC says cryptocurrency held in accounts is not insured by a government the way FDIC-insured deposits are, and the SEC's bulletin says crypto interest-bearing accounts are not as safe as bank or credit union deposits. Both statements address accounts; an on-chain pool has no insurer named in either document.

Why are there two T-bill figures?

FRED's DTB3 is quoted on a discount basis and DGS3MO on an investment basis, and the two conventions give different numbers for similar bills. A pool's supply rate is closer in kind to the investment-basis figure, though neither is an exact match.

Checks before supplying a pool

Read the pool's current utilization and its distance from the kink; near or above the kink means little idle cash.
Look up the base, slopes, optimal point and reserve factor in governance posts or market data, and note the date.
Work out the supplier rate with the formula above and compare it with the current Treasury bill yield on FRED.
Size the deposit so that being unable to withdraw for days would be an inconvenience, not a crisis, and consider a depeg or contract failure.
Treat any yield you cannot trace to borrower demand or a published formula as unexplained; the FTC's guidance advises finding out how an investment works and where the money goes, and notes that honest investment managers share that information and back it up with details.