Lending Protocol
A DeFi platform where users deposit crypto to earn interest and others borrow against collateral, all managed by smart contracts.
A lending protocol like Aave or Compound is an automated money market. Lenders deposit assets into a pool and earn interest; borrowers take loans from that pool by posting collateral worth more than they borrow. Rates float with supply and demand, and no human approves anything.
Because loans are overcollateralized, a falling market can trigger automatic liquidation, where your collateral is sold off to repay the loan, often at a penalty. Borrowers watch their health factor closely. The model works without trust, yet a bad oracle price or a code bug can still cause losses.
Related terms
Financial services run by code on public blockchains, letting people trade or borrow without a bank.
OracleA service that feeds outside data, like asset prices, into smart contracts, which otherwise cannot see anything beyond their own blockchain.
Flash LoanAn uncollateralized loan that must be borrowed and repaid within a single blockchain transaction, or it never happens at all.
LiquidationThe forced closing of a leveraged position when losses drop its collateral below the required minimum.