The simple acts of Lending and Borrowing are prominent financial primitives that form the basis of many more complex financial products. Just as there are DEXes operated by Automated Market Makers that allow people to swap their coins seamlessly with each other, there are numerous lending platforms in DeFi.


As a lender, you can provide liquidity (deposit coins to borrow) to the protocol in order to earn interest on your deposits from borrowers, and take out a loan in the form of some other coin using your deposits as collateral


When borrowing coins against deposited collateral, it is important to keep an eye on our health ratio; if the value of our collateral drops too much in proportion to our loan, the system may forcibly liquidate our funds lest we deposit more or pay back what we have borrowed. While the interest rates on deposits and borrows are decided algorithmically in a transparent manner, they typically are not stable but rather fluctuate depending on supply and demand. In some cases, you may not be able to retreive your deposit in full — if a coin is over-borrowed relative the liquidity deposited on the platform, for example. It is important to read the documentation of the platform we intend to use, as the risks involved can vary greatly depending on the exact implementation.


Lending protocols in DeFi let people take out loans from each other seamlessly and transparently; the interest rates and risk parameters are decided by the algorithms coded into the decentralised applications — like a bank or a pawn shop, but friendlier. DeFi protocols often reward their users (borrowers and lenders both, in this case) with native tokens, typically used to govern future changes to the protocol.

Related projects

Euler Finance

### What Euler is a non-custodial permissionless protocol on Ethereum that allows users to lend and borrow almost any crypto asset. Euler helps users to earn interest on their crypto assets or hedge against volatile markets without the need for a trusted third-party. ### Why? Euler introduces a number of new features in DeFi, including permissionless lending markets, protected collateral, reactive interest rates, per-second compounding interests and feeless flash loans. #### Permisionless listing Euler lets its users determine which assets are listed. Any asset that has a WETH pair on Uniswap v3 can be added as a lending market on Euler. #### Protected Collateral On Compound and Aave, collateral deposited to the protocol is always made available for lending. On the other hand, Euler allows collateral to be deposited, but not made available for lending. This collateral is 'protected'. It doesn't earn interest, but is free from the risks of borrowers defaulting, can always be withdrawn instantly, and helps protect against borrowers using tokens to influence governance decisions. #### Reactive interest rates Euler uses control theory to autonomously change the interest rates towards a level that maximises utilisation of assets in the protocol. These reactive interest rates adapt to market conditions for the asset in real-time without the need for ongoing governance intervention. #### Compound Interest Compound interest is accrued on Euler each second. This is different from other lending protocols, where interest is typically accrued every block. Earning interest per-second is generally expected to perform more predictably in the long-run, even if upgrades to Ethereum lead to changes in the average time between blocks. #### Feeless Flash Loans Euler only charges fees according to the time value of money, and from the blockchain's perspective flash loans are held for a duration of 0 seconds. Thus, they are entirely free on Euler (ignoring gas costs).