Yields & Returns
Lending
DeFi Lending
Supplying assets to borrowers through contracts for interest
Definition
DeFi lending supplies assets to borrowers through contracts in exchange for interest. In pooled money markets, lenders hold a claim on assets plus debt; available withdrawal liquidity is not the same as total claim value.
Example
In a hypothetical $1 million pool with $800,000 borrowed, utilization is 80% and only $200,000 is immediately available. A lender earning a constant 4% simple rate on $10,000 receives $400 in a year before fees.
How it works
Borrowers draw from supplied liquidity and accrue interest. Utilization often drives rates; repayment and liquidation replenish liquidity, unless collateral proceeds fall short.
Risks to Consider
- Bad debt from failed liquidations can impair lender claims
- High utilization can prevent immediate withdrawal
- A collateral oracle error can authorize excessive borrowing
Common Questions
How is lending different from borrowing?
The lender supplies capital and earns interest; the borrower receives capital and owes interest. A supply position used as collateral adds borrower-side liquidation risk.
