Disclosure: This newsletter is for informational purposes only and does not constitute financial advice. Always DYOR before making any investment.

Each week in Edge, we share data-driven insights, highlight risk ratings, and showcase new product updates.

Let’s dive in 👇

Inside DeFi Lending Curves

Lending rates in DeFi often look stable, until they don’t. A pool can sit at 4% borrow APY for weeks, then suddenly spike to 20% or higher. That jump isn’t random. It’s built into the model.

Most major lending protocols use a kinked interest rate curve. Borrow rates are a function of utilization, the percentage of supplied liquidity that is currently borrowed.

Utilization = Borrowed / Supplied.

When utilization is low, rates increase gradually. This keeps borrowing attractive and liquidity flowing. But once utilization crosses a predefined threshold, the “kink”, the slope of the curve steepens sharply. Rates rise aggressively to discourage additional borrowing and incentivize new deposits.

Let’s take the yoUSD/USDC Morpho market.

The kink (target utilization) is 90%.
Current utilization is ~82%, with borrow rates around 6%.

Below 90%, rates increase gradually as utilization rises.

If borrowing pushes utilization above 90%, say to 92–95%, the model shifts to its steep slope. Instead of moving from 6% to 7%, rates can jump into the mid-teens or ~20% very quickly.

That jump is mechanical.

Below the kink → capital is abundant, rates are stable.
Above the kink → liquidity becomes scarce, and the model aggressively reprices borrowing to protect withdrawals and rebalance supply.

The kink exists to protect liquidity. If utilization approached 100% with low rates, lenders couldn’t withdraw and markets would freeze. By sharply increasing rates past a threshold, the protocol creates a self-correcting pressure valve.

This is why lending yields can look calm for long stretches and then explode in stressed conditions. The system rewards balance and punishes excess leverage.

• yoEUR: Expanded allocation across Morpho EURC markets, with emphasis on V2 vaults. Capital was scaled into multiple Morpho EURC venues as borrowing demand strengthened across blue-chip collateral markets. The allocation notably increased exposure to newer Morpho V2 vaults, including Clearstar Reactor and Steakhouse Prime, where improved capital efficiency and updated risk frameworks are supporting more competitive lending rates.

  

• yoETH: 🆕 Added Origin eETH redemption and fully exited Reserve dgnETH. WETH was deployed into Origin’s eETH redemption market to capture staking-linked yield with efficient onchain liquidity, while maintaining clean exposure to Ethereum-native carry. At the same time, the vault fully exited Reserve dgnETH as its yield profile remained uncompetitive relative to simpler, more liquid alternatives.

  

• yoBTC: 🆕 Added Aave V3 cbBTC. A new allocation was initiated into the Aave V3 cbBTC pool to keep idle BTC productive while maintaining high liquidity and minimal strategy complexity.

  

 View all vault allocations ↗

Latest updates in the YOverse 👇

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