Lending Protocol
A DeFi application that matches lenders with borrowers through smart contracts, enabling permissionless borrowing and lending.
In-Depth Explanation
Lending protocols like Aave and Compound let users deposit assets to earn interest (supply) or borrow against collateral (borrow). Interest rates are typically algorithmic, rising with utilization. Key metrics include utilization rate, supply/borrow APY, and liquidation parameters.
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Related Terms
Collateralized Debt Position
CDPA loan where users deposit collateral to mint or borrow assets, with liquidation risk if collateral value falls.
Health Factor
A metric showing how close a lending position is to liquidation, where below 1 means liquidatable.
Liquidation
Forced closure of an undercollateralized position, typically with a penalty to the borrower.
Utilization Rate
The percentage of deposited assets in a lending protocol that are currently borrowed.
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