Lending/Borrowing
Last updated
Last updated
DeFi lending operates on decentralized blockchain protocols, eliminating the need for traditional intermediaries like banks. No banks, no paperwork, just you and your digital wallet.
Lenders: Deposit cryptocurrencies or digital assets into a DeFi platform's liquidity pool. In return, lenders earn interest on their deposited assets.
Borrowers: Access these funds by providing collateral, usually other cryptocurrencies or stablecoins. Once the collateral is deposited, borrowers can take out loans in the form of other cryptocurrencies or stablecoins.
Interest Rates: Determined algorithmically based on supply and demand, fluctuating in real-time.
Smart Contracts: Automate the entire process, including matching lenders and borrowers, managing collateral, and handling interest payments, ensuring transparency, security, and fairness.
Accessibility: Open to anyone with an internet connection and a cryptocurrency wallet, eliminating geographical restrictions and credit checks.
Transparency: All transactions are recorded on the blockchain, allowing complete auditability.
Efficiency: Automated processes controlled by smart contracts reduce delays, bureaucracy, and costs.
Asset Variety: A wider range of assets can be used as collateral or for lending, offering more options for users.
User Control: Users retain control over their assets and interact directly with the protocol without relying on centralized entities.
On-chain lending markets enable participants to earn yields on their assets and switch assets without triggering taxable events. Marginfi is the leading lending protocol on Solana, with over $350 million in deposits and $80 million in borrows.
Solend was the leading lending protocol on Solana before the FTX collapse, with its TVL nearing $1 billion in November 2021. However, as FTX headed towards bankruptcy in November 2022, Solana token prices plummeted, causing mass liquidations and dropping Solend's TVL from over $350 million to around $25 million in a week. By December 26, 2023, Solend's TVL had recovered to just over $200 million, still below pre-FTX levels. This decline allowed a new protocol to attract capital, as Solend's existing token and interest rates were insufficient to retain users.
Marginfi capitalized on the opportunity by introducing 'points' in early July 2023, which promised an additional airdrop for depositors and borrowers on top of the interest earned. This incentive led to a significant increase in its TVL, growing from approximately $30 million to around $485 million in just two months after October 15.
Kamino, the second-largest lender on Solana, announced 'points' on December 3, leading to an 8x increase in TVL to ~$245 million in three weeks. Multiple lending platforms exist due to their different risk management frameworks and product offerings. For instance, Solend allows permissionless pools with customizable parameters, Marginfi lacks this feature, and Kamino offers leveraged yield farming vaults with depeg risks. Yield aggregators like Meteora provide dynamic vaults that deposit capital and rebalance among top lending protocols and liquidity pools to maximize capital efficiency and earn from yield and trading fees.
