Institutional demand to borrow against Bitcoin without selling it has drained nearly every spare dollar from the liquidity pool built for the purpose. Approximately 97.4% of the USDC supplied to the main cirBTC/USDC market on Morpho is now out on loan, up from 8.1% when Circle Mint opened access to the market on Sept. 21. Three weeks later, the pool sits close to capacity.

From Quiet Launch to Near Capacity

As of Oct. 13, 2026, the flagship cirBTC/USDC market on Circle's Arc Layer-1 held $195 million in supplied USDC. Of that amount, $190 million had been borrowed.

Circle launched cirBTC on Sept. 21 as a token backed 1:1 by Bitcoin. It is built for a product the company calls Digital Asset-Backed Borrowing, or DABB. Under the structure, eligible institutional Circle Mint customers can post cirBTC as collateral and borrow USDC that is credited directly to their Mint balances, letting them raise dollar liquidity while leaving their Bitcoin exposure intact. The lending runs through Morpho markets on both Arc and Ethereum.

Collateral is not the constraint. More than $304 million in cirBTC currently backs these borrowing operations. The bottleneck is the supply of USDC on the other side of the table.

The squeeze is not limited to the headline market. Smaller individual cirBTC/USDC markets on Arc have also reported utilization close to 100%.

Who Does What in the Arrangement

Circle has deliberately kept itself out of the lending business. It does not underwrite loans and does not lend within this structure. Its role is custodial, handled through Circle National Trust, and proof of reserves is published onchain using Chainlink, so anyone can verify the Bitcoin behind cirBTC actually exists.

Morpho sets and manages the market parameters, including a liquidation loan-to-value ratio, or LLTV, of 86%.

Borrowing costs have stayed modest. Variable rates in the market sit at roughly 2.8% to 2.9% APY, with the current borrow rate near 2.89%. In markets of this design, borrow rates are tied to utilization, so pools near capacity generally become more expensive to draw from until fresh USDC is supplied.

Circle also widened the offering in early October, when an integration with Aave gave institutional clients a second venue for borrowing against cirBTC.

Why the Jump From 8.1% to 97.4% Matters

Utilization measures how much of a lending pool has actually been drawn down. A move from 8.1% to 97.4% in roughly three weeks indicates that demand ran far ahead of supply, with borrowers arriving faster than lenders.

For borrowers, the product works as intended, the rate is comparatively cheap, and the plumbing into Circle Mint appears to function as advertised. But with roughly $5 million of headroom left in the main market, the next large borrower may find little available liquidity. What happens next will be visible onchain: whether new USDC suppliers top up the pool, whether the Aave venue absorbs overflow demand, and whether rates lift off their current 2.8%-to-2.9% range while utilization stays pinned near the top.

What It Means for Institutional Bitcoin and DeFi

The participants are institutional Circle Mint clients rather than anonymous wallets, and they are using a DeFi protocol to do it. Circle remains a custodian and stablecoin issuer, Morpho operates the risk engine, and Chainlink verifies the reserves.

For Circle, the product gives Bitcoin holders a reason to bring assets into its ecosystem and creates fresh demand for USDC itself. Every dollar borrowed in these markets is a dollar of USDC in circulation.

It also gives Arc, Circle's own Layer-1, a concrete use case early in its life. The main market and the smaller near-full markets are all on Arc.

The risks are the familiar ones, magnified by concentration. An 86% LLTV leaves room, but a sharp Bitcoin drawdown could push some positions toward liquidation. In a market where almost all the cash is already lent out, liquidations and withdrawals arriving together would stress the system in ways a half-empty pool would not.