Historical Utilization
Each currency reserve is characterized by its utilization rate :
monitors which share of the reserve’s total capital is borrowed at time .
As gets closer to 100%, the capital becomes scarcer until no more liquidity is available when . This situation can be problematic if depositors wish to withdraw their liquidity, but no funds are available.
Still high utilization results in high returns for depositors, which is desired. Its therefore essential to maximize utilization all while protecting liquidity.
The interest rate model is calibrated around an optimal utilization rate per reserve that reflects market conditions.
The historical utilization rate helps us track the risk emerging from the lack of liquidity. Since inception, across the primary market, full utilization was reached only 0.7% of days since inception. The table below shows statistics on the maximum daily utilization as at the 7th of July 2020.
Statistic | % of time |
= 100% | 0.7% |
> 95% | 2.4% |
> 90% | 4.4% |
> 80% | 14.4% |
> 50% | 33% |
< 25% | 54.8% |
< 10% | 43.1% |
< 5% | 33% |
Stablecoins are the preferred currency for borrowing, and their reserves are among the most utilized. The chart below shows the historical utilization of Aave’s stablecoin reserves.
Most stablecoin reserves have reached full utilization, but only sUSD and BUSD have remained at full utilization for some time. These two reserves are the smallest ones, leading to more volatility. As of the 7th of July 2020, the sUSD reserve is $292k: a $29k deposit, withdrawal or loan can shift the utilization rate by 10%. Still, full utilization remains very rare, occurring just around 1%. Conversely these reserves have also witnessed the longest periods of underutilization, , just above 20% for both. BUSD market was launched on the 26th of March so it is less mature than the other reserves.
Statistic | USDC | DAI | sUSD | TUSD | USDT | BUSD |
Max | 100% | 99.5% | 100% | 100% | 100% | 100% |
= 100% | 0% | 0% | 1.2% | 0% | 0% | 1.1% |
> 95% | 2.4% | 4.1% | 6.5% | 2.4% | 6.5% | 4.4% |
> 90% | 10.1% | 8.3% | 12.5% | 3.6% | 16% | 5.5% |
> 80% | 34.9% | 40.8% | 35.1% | 28.4% | 49.1% | 38.5% |
> 50% | 89.9% | 80.5% | 64.3% | 63.9% | 92.9% | 74.7% |
< 25% | 0.6% | 0% | 22% | 5.9% | 0.6% | 23.1% |
< 10% | 0.6% | 0% | 7.1% | 0.6% | 0.6% | 7.7% |
< 5% | 0.6% | 0% | 1.2% | 0.6% | 0.6% | 2.2% |
All the stablecoin reserves are mostly utilized, ,most of the time, the utilizations above the respective are highlighted in pink. For each of the assets, utilization seems to hover around the Uoptimal, indicating the interest rate model is efficient at protecting liquidity. Occurrences of utilization above 95% are rare throughout all reserves. The most utilized markets are USDT and sUSD, with a utilization above 95%, 6.5% of the time.
The other currencies integrated in the Aave portfolio have been selected for the quality of their product. Their upside potential is significant which may explain why users seem less inclined to borrow them as apparent in the chart of historical utilization rates below.
The utilization of volatile assets looks completely different from the stablecoins, most currencies being concentrated on lower utilization. Utilization has boomed since the 15th of June driven by the launch of liquidity tokens such as Compound Governance token which rewards ZRX, REP, BAT, DAI, ETH, USDC, USDT and WBTC liquidity providers. Incentives on BAT were recently reduced leading to a fast drop in utilization. This trend is expected to continue with additional liquidity tokens coming such as Balancer which has just launched and covers all tokens in Balancer. Some optimal utilization rates have been adapted to align with the incentives and rewards of the market.
SNX stands out as the token with the highest utilization and lots of volatility. The reserve is utilized 8.9% of the time. This is due to the staking system of Synthetix which relies on holders locking tokens to mint synths. Those with large stakes are able to profit even when borrowing SNX with interest. This also impacts sUSD which are minted in exchange for the locked SNX.
The MANA has also been decently utilized all though it rarely reaches high utilization ratio; this token can be used to purchase digital land on Decentraland which can be enabled by borrowing on Aave, similar to a mortgage. The MANA total liquidity is small, standing at only $163k which leads to higher volatility in the utilization ratio pushing it up to 82.6%.
Some assets are barely borrowed, for example, the LEND reserve utilization has been under 1% for 91% of the time. Overall utilization of the LEND, BAT, ETH, LINK, KNC, MKR and WBTC pools are nearly always (>90%) below 25%. This shows confidence in the growth of these assets.
The table below shows statistics on daily utilization of Aave's primary market assets.
Statistic | BAT | ETH | KNC | LEND | LINK | MANA | MKR | REP | SNX | WBTC | ZRX |
Max | 92.8% | 100% | 99% | 17.6% | 12.9% | 82.6% | 61.1% | 57.3% | 100% | 100% | 64.9% |
= 100% | 0% | 0.6% | 0% | 0% | 0% | 0% | 0% | 0% | 8.9% | 0.6% | 0% |
> 95% | 0% | 0.6% | 1.2% | 0% | 0% | 0% | 0% | 0% | 13% | 0.6% | 0% |
> 90% | 1.2% | 0.6% | 1.2% | 0% | 0% | 0% | 0% | 0% | 14.8% | 0.6% | 0% |
> 80% | 1.8% | 0.6% | 1.2% | 0% | 0% | 1.2% | 0% | 0% | 21.3% | 1.2% | 0% |
> 50% | 3% | 3% | 1.2% | 0% | 0% | 19.9% | 1.2% | 4.2% | 72.8% | 3% | 3.6% |
< 25% | 93.5% | 86.3% | 98.8% | 100% | 100% | 52.8% | 79.3% | 78.9% | 9.5% | 95.8% | 69.2% |
< 10% | 60.9% | 54.8% | 94.6% | 96.4% | 96.4% | 45.3% | 58% | 70.5% | 0% | 94.6% | 30.2% |
< 5% | 38.5% | 25% | 65.5% | 92.9% | 94.1% | 25.5% | 56.2% | 61.4% | 0% | 61.1% | 21.9% |
Aave’s historical utilization rates show us that each asset has a different liquidity risk profile. Overall, besides newly launched reserves, reserves that systematically reach 100% utilization have specific characteristics that make them prone to it. Synthetix assets (SNX and sUSD), or tokens prone to liquidity mining, generate passive income which may outweigh the costs of borrowing.
Overall, Aave’s liquidity is adequate, validating the protocol’s incentives. For the reserves that experience full utilization, it may be worth deploying alternative sources of liquidity to ensure users may redeem their share anytime, if not on Aave, on other liquidity pools such as Uniswap or Balancer.
Additionally, the utilization of tokens which can be used for liquidity mining needs to be monitored, in just a few weeks it has already transformed the ecosystem.
