# Utilization Each market liquidity is characterized by its utilization rate U: $$ U = Total Borrow/Total Supply $$ The utilization rate indicates the proportion of total supply that is actively loaned out at any given time (t). As U approaches 100%, available liquidity decreases—potentially leading to withdrawal constraints for suppliers if all capital is locked in active loans. > Note: In rare cases, U may exceed 100% if the platform’s internal reserves are opened for borrowing. These reserves are not counted in the Total Supply, but contribute to Total Borrowed—resulting in temporary over-utilization. While high utilization generally leads to higher returns for liquidity providers, it also increases the risk of limited withdrawal availability. Therefore, it is critical to balance capital efficiency with liquidity safety. To manage this, each token market is calibrated with an optimal utilization rate (Uₒₚₜᵢₘₐₗ)—commonly referred to as the "kink" in Paddle’s dynamic interest rate model. Interest rates increase more sharply beyond this kink, discouraging excessive borrowing and helping restore healthy liquidity levels. This mechanism ensures that capital remains productive, while maintaining accessibility for suppliers and stability across markets. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.paddlefi.com/risk-framework/liquidity-risk/utilization.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.