How Do DeFi Lending Protocols Work?
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This article provides an overview of how decentralized finance (DeFi) lending protocols work. DeFi lending is a peer-to-peer approach that allows users to lend and borrow funds without intermediaries like centralized banks. Lenders deposit their cryptocurrency into lending pools, which are then available for borrowers to borrow against by providing collateral in the form of other cryptocurrencies or stablecoins. Smart contracts are the digital agreements that underpin lending protocols, dictating the terms of the lending agreement between borrowers and lenders and automating the execution of loans. DeFi loans offer several benefits over traditional lending, including transparency, low fees, and accessibility, but also come with risks such as smart contract risk, market risk, and regulatory risk. The article also provides recommendations on beginner-friendly DeFi lending protocols such as Sturdy Finance.