Lending protocols

A space to discuss the ‘Lending’ market sector available on Token Terminal.

What are lending protocols?

Lending protocols are smart contract-based marketplaces that allow for permissionless lending and borrowing of assets globally.

What problems do lending protocols aim to solve?

It’s difficult to get initial liquidity for assets, the liquidity is geographically siloed, and the transparency of collateral and outstanding loans is enforced primarily through regulation instead of technology.

How do lending protocols solve those problems?

Lending protocols bring down the cost of an arbitrarily sized financing to one function call. Once an asset is represented as a token onchain, it can be deposited as collateral into a lending protocol (subject to the protocol’s risk management parameters), and a loan can be taken out against it.

Why is now the right time to build and invest in lending protocols?

The lending market was initially dominated by p2p solutions, most of which suffered from low liquidity. Lending protocols with pooled liquidity emerged to solve this liquidity bootstrapping problem, and have since gone onto facilitating billions in outstanding loans. Recently, we’ve seen the rise of lending protocols built on application-specific chains, these are able to modify the functionality of the underlying chain to improve the user experience for both lenders and borrowers.

What is the business model of lending protocols?

The primary business model for lending protocols is to generate revenue by taking a cut of the interest paid by borrowers. That is, the lending protocol takes a portion of the lenders’ revenue.

Where can I view the current and historical (financial) performance of lending protocols?

Lending dashboard: Lending | Markets | Token Terminal

Methodology for lending-specific metrics

Total value locked: collateral deposited into the lending protocol’s markets.
Active loans: outstanding loans on the lending protocol.
Fees: total interest paid by borrowers.
Supply-side fees: share of interest that goes to the lenders.
Revenue: share of interest that goes to the protocol (and its tokenholders).
Token incentives: value of governance tokens distributed to lenders and/or borrowers.
Daily active users: daily distinct addresses depositing, borrowing, repaying, and withdrawing assets.

Example project documentation

Relevant links