🔧 How Lending Protocols Work
Understand liquidity pools, collateral factors, and smart contract logic
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0 / 5 completed⚙️ How Lending Protocols Work
DeFi lending protocols use smart contracts to automate the entire lending and borrowing process. Let's see how a loan actually works step by step.
🎮 Interactive: Borrowing Simulation
Follow the process of taking out a crypto loan with live calculations:
💎 Step 1: Deposit Collateral
First, you must deposit collateral to secure your loan. Adjust the amount to see how it affects your borrowing power:
Note: Most protocols require 150-200% collateralization. You can borrow up to 50-75% of your collateral value.
Smart Contract Flow
User Deposits Collateral
Smart contract locks collateral and issues receipt tokens (e.g., aTokens)
Protocol Calculates Borrowing Power
Oracle provides real-time price data; system computes max borrow amount based on LTV ratios
User Borrows Assets
Smart contract transfers borrowed assets to user's wallet; debt position is recorded
Interest Accrues Continuously
Every block, interest is calculated and added to debt (compounded per second on most protocols)
Monitoring & Liquidation
Liquidation bots constantly monitor positions; if HF <1.0, they trigger liquidation to protect lenders