Lending Protocol
A decentralized finance system that lets users lend or borrow crypto through smart contracts, usually using collateral and algorithmic interest rates.
A lending protocol is a DeFi application that uses smart contracts to connect crypto lenders and borrowers without a traditional bank or broker. Users who supply assets to the protocol can earn interest, while borrowers can take out loans by locking up collateral, often worth more than the amount borrowed. Interest rates usually adjust automatically based on supply and demand in each asset pool.
Lending protocols matter because they make crypto assets more usable: holders can seek yield without selling, and borrowers can access liquidity while keeping exposure to their collateral. For example, someone might deposit ETH as collateral and borrow a stablecoin to use elsewhere, similar to taking a secured loan against an asset. The main risks include smart contract bugs, volatile collateral prices that can trigger liquidation, and changes in market liquidity or protocol rules.
Other terms in DeFi
AMM
An automated market maker is a DeFi protocol that uses liquidity pools and algorithms to price and swap crypto assets without a traditional order book.
Aggregator
A DeFi service that searches multiple protocols to find better prices, routes, or yields for a user’s transaction.
DEX
A decentralized exchange is a crypto marketplace where users trade directly from their wallets using smart contracts instead of a central intermediary.
DeFi
A blockchain-based financial ecosystem that lets people lend, borrow, trade, and earn yield without traditional banks or brokers.