Lending Protocol
A smart contract system where users deposit assets that others can borrow, with interest rates set automatically by supply and demand.
In the pooled design, deposits of one asset go into a shared reserve, and borrowers draw from it after posting other assets as collateral worth more than the loan. The interest rate follows a published curve based on utilization, the share of the pool currently borrowed, so rates rise steeply as the pool empties, which encourages repayment and new deposits. Depositors receive a receipt token that accrues interest, and borrowers are liquidated automatically if their collateral falls below the required level. This is not banking: there is no deposit insurance, no credit assessment, and no recourse to a borrower's other assets or income, so recovery depends entirely on selling the collateral that was posted.
En pratique
Aave and Compound popularized the utilization-curve model, in which the borrowing rate is a published function of how much of the pool is currently lent out.
Le malentendu courant
Deposits in a lending protocol are not bank deposits; there is no insurance, and withdrawal depends on unborrowed liquidity being available in the pool.
Le chiffre auquel cela correspond
The dollar value of assets currently deposited in a protocol's or a chain's smart contracts.
Limites: TVL rises and falls with the price of the deposited assets even when nobody deposits or withdraws anything, so a large part of any move is a price index rather than a flow. Double counting is routine: a deposit that mints a receipt token which is then deposited elsewhere is counted in both places,…