We develop a model of Decentralized Finance (DeFi) lending platforms that set interest rates as programmable functions of the utilization of available funds. These platforms are unable to incorporate off-chain information into the platform’s interest rates, leading to inefficient DeFi equilibria that feature excess demand or supply. Absent uncertainty about withdrawals, these inefficiencies can be made arbitrarily small through an interest rate function that is highly sensitive to changes in utilization. In contrast, in the presence of withdrawal shocks, the optimal interest rate function must balance a trade-off between the efficiency and volatility of interest rates.