Overview
Lending is a core DeFi primitive where users supply assets to earn interest or borrow against collateral, with rates set algorithmically by supply and demand. Protocols like Aave and Compound pioneered this money-market model. It removes the need for a credit check or central intermediary.
How It Works
Suppliers deposit assets into a protocol pool and earn interest, while borrowers post collateral and pay interest. Rates adjust based on pool utilization, rising as more capital is borrowed. Liquidation protects the pool when collateral value drops below the loan threshold.
Why It Matters
Lending unlocks the capital efficiency of idle assets and underpins much of DeFi's yield economy. It lets anyone become a lender or borrower globally, around the clock. Its risk framework, including liquidation and oracles, is the reference for the entire sector.
Related Concepts
Lending connects to Collateral, Loan-to-Value, and Liquidation, and relies on Oracles for pricing. It is central to the DeFi ecosystem alongside AMMs and stablecoins.