What is DeFi lending?

DeFi lending is borrowing and lending crypto without a bank or middleman — it runs entirely on smart contracts. Here's how it works:

The core mechanic: over-collateralization. Because there's no credit score or identity, lenders only trust collateral. To borrow $100 worth of ETH, you typically need to lock up $150+ of collateral. If your collateral's value drops below the required ratio, the protocol liquidates it — sells your collateral automatically to repay the lender. That's the risk engine that keeps the whole system solvent.

Key pieces:

• Lenders deposit assets (e.g. USDC) into a pool and earn interest from borrowers.
• Borrowers deposit collateral and draw a loan against it, paying interest.
• Interest rates are algorithmic — they rise and fall with supply and demand in real time, no bank setting the rate.
• You keep your upside: borrow against your ETH without selling it, and you still benefit if ETH goes up (since you still hold it).

The "money market" model (Aave, Compound) is the dominant design: one pool per asset where anyone can lend or borrow, rates set by utilization. The newer "peer-to-peer" model (like Morpho) matches specific lenders and borrowers directly, usually at better rates but with more complexity.

What it's used for:

• Getting liquidity without selling long-term holdings
• Leverage — borrow stablecoins, buy more crypto
• Yield farming — lend assets out for interest
• Shorting (in some setups)

Key risks: liquidation risk (your collateral can be sold if price drops), smart-contract hacks, and market risk if your collateral and your borrowed asset move in unexpected ways.

It's a genuinely different financial model — a lending system where the "credit risk" is replaced by collateral math instead of trust.

Want me to look at the actual lending protocols — I can pull live TVL and fee data for the top ones (Aave, Compound, Morpho, etc.) so you can see who's actually being used.