A 12% APY exists because borrowers are paying it today. It can become 3% in a week without a single bad loan.
Key takeaways
Check utilization before deposit size.
Model the rate after a 20% withdrawal.
Treat a kink jump as a risk signal.
Verified October 27, 20261 min read
Where the rate comes from
A lending pool prices liquidity, not credit. When almost everything is borrowed, the marginal borrower pays a steep rate, and that rate is passed to suppliers as yield. The mechanism is arithmetic, and it is indifferent to whether the borrower is good for the money.
The trade you are actually making
You are supplying cash to a pool and earning the borrow rate. In exchange you accept that your capital is illiquid exactly when the market is stressed — which is also when the rate looks most attractive.
Utilization
Typical effect
Liquidity to withdraw
Under 60%
Low, stable rate
Plenty
80–90%
Rate climbing
Thin
Above kink
Steep rate, spikes
Often zero
A better question than APR
Ask what the rate becomes if 20% of suppliers leave. If the answer is a kink jump, you are being paid for liquidity risk you cannot hedge.
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