Lending and Borrowing

DeFi lending protocols let users borrow without a credit interview by overcollateralizing the loan. Instead of trusting your income, the protocol trusts the assets you lock on-chain.

This model works because the collateral can be monitored in real time. If its value falls too far relative to the debt, the position can be closed by liquidation rules.

For users, that makes DeFi lending useful when they want liquidity without selling a long-term asset position. They can keep exposure while accessing spendable capital elsewhere in the system.

The risk is that volatile collateral can move faster than expected. A loan that looks conservative in the morning can become dangerously close to liquidation after a sharp market swing.