Lending

Introduction

Lending refers to the process of supplying tokens to a pool, with lenders earning interest on their deposit. Borrowers seeking to obtain tokens pay interest to those lending, which forms the revenue source for the lenders. The lenders have the freedom to withdraw their tokens at any time, as long as they are not being used as collateral and the entire supply is not being borrowed. This model does not feature any time-based locking or punitive measures for withdrawal.

Lending refers to the act of supplying tokens to a common pool, with lenders earning interest on their deposit. Borrowers seeking to obtain tokens pay interest to those lending, which forms the revenue source for the lenders. The lenders have the freedom to withdraw their tokens at any time, as long as they are not being used as collateral and the entire supply is not being borrowed. This model does not feature any time-based locking or punitive measures for withdrawal.

How to earn interest

In USDFI's lending pools, once a user deposits tokens, the pool will generate oTokens, or "receipt tokens," which serve as proof that the user has provided assets to the pool. When the user decides to withdraw their tokens, they must return the oTokens as well. It's essential to hold onto these oTokens. The conversion rate between oTokens and the deposited tokens accounts for the interest paid by borrowers. Therefore, upon withdrawal, users receive more tokens than they initially deposited, proportionate to the token's Annual Percentage Yield (APY). It's crucial to note that the APYs in USDFI's Money Markets are dynamic and not static. They are updated at the block level and can fluctuate considerably in a short period. The interest rates received by lenders are determined by the rates paid by borrowers.

Example

Let us consider an illustrative scenario. Suppose you deposit 10f ETH with an average annual percentage yield (APY) of 5%. Once you complete the deposit, you will observe that your wallet will reflect 10 units of oETH, which represents your receipt tokens. Upon requesting the withdrawal of your original ETH after 1 year, you will exchange the oETH tokens and receive a total of 10.5 units of ETH in return. This reflects your initial 10 ETH deposit, along with the additional 5% interest that you earned over the 1-year period.