Crypto glossary

Lending

Crypto lending means supplying assets to a lending protocol or platform so others can borrow them. Lenders earn interest paid by borrowers, who in turn must lock up collateral worth more than they borrow.

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How lending protocols work

In DeFi, lenders deposit assets such as USDC or ETH into a shared pool run by a smart contract. Borrowers lock collateral and take loans from that pool. The interest borrowers pay is passed to lenders, minus a cut for the protocol. Rates are usually variable and set by an algorithm based on utilization: the larger the share of the pool that is borrowed, the higher the rate, which attracts new deposits and discourages more borrowing.

Centralized platforms offer similar products, but there a company takes your coins and decides how to lend them, often without showing you where they go.

An example

Say you deposit 10,000 USDC into a pool where 80 percent of deposits are borrowed and borrowers pay 6 percent a year. Roughly, the pool earns 6 percent on 80 percent of its funds, about 4.8 percent across all deposits, and after the protocol's share you might receive a little over 4 percent. If borrowing demand drops, your rate drops with it. These numbers are hypothetical; real rates change constantly.

Where the yield comes from

In a healthy setup, interest comes from borrowers, who are mostly traders seeking leverage or people who want cash without selling their crypto. When a platform pays much more than borrowers plausibly pay, the extra often comes from token rewards or from risks you cannot see.

Risks

In DeFi, the risks are smart-contract bugs, oracle failures, bad debt if liquidations fail in a crash, and the chance that very high utilization temporarily stops you from withdrawing.

On centralized platforms, the main risk is counterparty risk. In 2022 several large crypto lenders, including Celsius, froze withdrawals and later filed for bankruptcy, and customers became unsecured creditors waiting for a share of what remained.

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Frequently asked questions

Is crypto lending the same as staking?

No. Lending earns interest paid by borrowers, while staking earns network rewards for helping secure a proof-of-stake blockchain.

Can I always withdraw my deposit?

Not always. If almost everything in a pool is borrowed, withdrawals may have to wait until borrowers repay or new deposits arrive. Centralized platforms can also freeze withdrawals.

Why must borrowers deposit more than they borrow?

Because the protocol cannot check credit or chase debts, it protects lenders with overcollateralization and automatic liquidation.

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All glossary terms · Educational reference only — not investment, legal, tax or financial advice.