Interest rates on decentralised lending markets change from block to block, and no committee sets them. The rate is the output of a formula that reads a single input: how much of the pool is currently borrowed.
Utilisation is the input that drives everything
A lending pool holds deposits from many suppliers and lends them out to borrowers who have posted collateral. Utilisation is simply the share of that pool currently on loan at any moment.
The protocol maps utilisation onto a borrowing rate using a curve written into the contract. When little is borrowed the rate sits low, and as the pool empties towards full deployment the rate climbs.
Because the mapping is deterministic, anyone reading the chain can compute the next rate before it is charged. There is no discretion, no meeting and no announcement, which is the sharpest difference from bank lending.
The curve bends sharply near the top
Most curves rise gently across the lower range and then steepen abruptly at a kink, placed near the utilisation level the designers want the pool to settle around.
Above that kink, a small increase in borrowing produces a large jump in the rate. The steepness is deliberate rather than incidental, and it exists to protect the people who supplied the money.
Suppliers can only withdraw from the portion of the pool that is not lent out. A punishing rate above the kink pushes borrowers to repay and pulls fresh deposits in, and both effects refill the withdrawable balance.
Supply yields are a residual, not a promise
Whatever borrowers pay is distributed across suppliers in proportion to their share of the pool, after the protocol keeps a cut known as the reserve factor.
Idle deposits earn nothing, so the supply rate is roughly the borrow rate multiplied by utilisation and then reduced by that reserve. A pool that is half lent out therefore pays suppliers well under half of what borrowers are charged.
This is why advertised deposit yields sag when capital rushes in. The same borrowing demand is being spread across a larger base, and the arithmetic does the rest without any policy change.
Rates converge across venues
Borrowers compare pools holding the same asset and move to whichever venue is cheaper, while suppliers do the reverse and chase the higher yield wherever it appears.
Those flows change utilisation on both sides at once, dragging the two rates towards each other. That is why quotes for a widely available asset rarely stay far apart for long.
Gaps that persist usually reflect something other than the rate itself: a riskier set of accepted collateral, a thinner pool that is expensive to enter and exit, or a contract with a shorter operating history.
Governance sets the shape, not the number
Token holders or a risk committee can vote to change the curve, the kink position or the reserve factor, and those parameters are where human judgement enters the system.
What they cannot do is set today's rate. Once the curve is deployed the rate follows utilisation mechanically, so borrowers plan around a visible rule rather than around announcements.