Institutional demand for borrowing against Bitcoin via Circle’s cirBTC token has led to a significant liquidity squeeze on the Morpho protocol. As of October 13, 2026, the primary cirBTC/USDC market on Circle’s Arc Layer-1 network reached a 97.4% utilization rate, up from 8.1% at the product's launch on September 21.
The main market currently holds $195 million in supplied USDC, with $190 million already borrowed by institutional clients. While over $304 million in cirBTC serves as collateral for these operations, the available liquidity for new loans has dwindled to approximately $5 million.
The lending structure relies on Morpho to manage market parameters, including a liquidation loan-to-value ratio of 86%. Borrowing costs remain between 2.8% and 2.9% APY. Circle maintains a custodial role through Circle National Trust, while Chainlink provides on-chain proof of reserves for the Bitcoin backing the tokens.
In early October, Circle expanded borrowing options by integrating with Aave. This move provides institutional customers with an additional venue to leverage their cirBTC holdings. The current system is designed to drive demand for USDC and provide a practical use case for the Arc network.
