DeFi lending

DeFi lending is a way to borrow or lend without banks, using smart contracts on a blockchain to match peers and enforce terms automatically. Lenders deposit assets into lending pools and earn yield as borrowers take loans from those pools. Borrowers post crypto as collateral and usually borrow stablecoins to avoid selling their long-term holdings. Most systems require over-collateralization, so you must lock more value than you borrow to protect lenders. Smart contracts hold collateral and trigger liquidation if collateral falls below a preset ratio. Interest rates are usually variable and change with supply and demand in the pool. Some platforms offer fixed-rate products, but these are less common. Liquidity providers can earn interest and fees, which vary by protocol and by market conditions. Because loans are executed by code, there is less paperwork and no need for intermediaries, which makes access faster and more inclusive. But code is not infallible, so smart contract risk is real and should be assessed before committing funds. Oracles feed price data to the contracts and if an oracle is manipulated, liquidations can happen unfairly. Liquidation mechanisms differ; some use auctions, others use instant swaps, and the cost and penalty for liquidation can vary. Flash loans are a unique DeFi tool that allows borrowing without collateral for one transaction, and they enable complex strategies but also enable attacks. Composability means lending protocols often interconnect with other DeFi primitives, so risk can cascade across systems. Governance tokens sometimes give users a say in protocol parameters, but governance can be slow and contentious. To use DeFi lending safely, check the required collateralization ratio, the liquidation threshold, the oracle design, and whether the smart contracts have been audited. Diversify across protocols and avoid putting all liquidity into a single pool. Keep a buffer above the minimum collateral to avoid sudden market moves triggering liquidations. Use stablecoins if you need predictable debt value, and consider borrowing only what you can maintain in volatile markets. Remember permissionless access means anyone can lend or borrow, but it also means you carry more responsibility for custody and monitoring. DeFi lending reshapes credit by replacing institutions with code, and with careful study it offers flexible liquidity and new yield opportunities while also demanding disciplined risk management.