Capital Efficiency

Capital efficiency measures how much of the money in a lending protocol actively generates yield. Pool-based protocols typically operate at 30-60% utilization, meaning 40-70% of deposits sit idle. Amish achieves 100% utilization on matched positions by eliminating pools entirely.

How pool utilization works

In a pool-based protocol, lenders deposit assets into a shared pool. Borrowers draw from that pool. The utilization ratio is the percentage currently borrowed:

Utilization = Active Borrows / Total Deposits

A protocol with $100 million in deposits and $55 million in active borrows has 55% utilization. The remaining $45 million earns nothing - it sits idle, waiting for future borrowers or potential withdrawals.

Why pools require idle capital

Pools cannot operate at 100% utilization. If every dollar were borrowed, no lender could withdraw until a borrower repaid. This creates bank run risk.

To prevent this, protocols use interest rate curves that punish high utilization. When utilization climbs toward 80-90%, rates spike dramatically - often to 50% or higher APR. This forces utilization back down by making borrowing uneconomical.

The target utilization range is typically 30-60%. Outside of unusual market conditions, this is where major pool-based protocols operate. It is not a failure of design - it is how pool-based lending must work to remain solvent.

The cost of idle capital

Consider a lending market with $100 million in deposits, typical of a mid-size Aave market.

At 55% utilization:

• $55 million actively generating yield

• $45 million earning nothing

If the borrowing rate is 8% APR, lenders receive interest only on the borrowed portion. Spread across all deposits:

Effective yield = 8% × 0.55 = 4.4%

Lenders see 8% advertised but realize 4.4%. The protocol keeps some spread, so actual returns are even lower.

Across major lending protocols, this pattern represents billions in aggregate idle capital - capital that generates zero yield for depositors.

How Amish eliminates idle capital

Amish has no pools. Capital does not enter the protocol until two parties match.

A lender creates an intent specifying what they will lend and under what terms. This intent is a signed message - no capital moves. The lender keeps full custody of their assets.

When a compatible borrower appears, the protocol matches them. Both parties execute their transfers. The lender's capital goes directly to the borrower.

At the moment of match, utilization is 100% by definition. Every unit of the lender's capital is deployed to a specific borrower. There is no reserve, no buffer, no idle liquidity.

Comparing yield outcomes

Pool-based (55% average utilization):

• Deposit $10,000

• Earn 8% on the borrowed portion only

• Effective return: $10,000 × 8% × 0.55 = $440/year

• Capital locked in pool throughout

Intent-based (100% utilization on match):

• Create intent for $10,000

• Match forms, entire $10,000 deployed

• Return: $10,000 × 8% = $800/year

• Capital free until match forms

The intent model delivers nearly double the yield on the same capital with the same borrowing rate.

Unmatched intents

Unmatched intents do not constitute idle capital in the same sense as pool deposits. The critical difference is ownership. In a pool, deposited capital is locked and unavailable while waiting for borrowers. With intents, capital remains in the user's wallet. Users can cancel the intent, modify terms, or use the capital elsewhere without friction.

Protocol efficiency depends on match rate. As more participants use Amish, the probability of finding compatible counterparties increases. Deep liquidity on both sides approaches the ideal: most intents match quickly, and matched capital achieves 100% utilization.

Cross-chain efficiency gains

Pool fragmentation multiplies inefficiency. A protocol on five chains maintains five separate pools. A lender on Arbitrum cannot serve a borrower on Optimism without bridging.

Amish matches across chains natively. A lender's capital can serve borrowers on any supported chain. This effectively pools demand from all chains into one market, increasing match rates without actually pooling capital.

No liquidity fragmentation. No bridging fees. No bridge risk.