Question 1

What are Lending Vaults?

Accepted Answer

Lending Vaults are shared pools where lenders deposit assets that borrowers can borrow from. For example, all BTC deposited by lenders goes into one BTC vault, and borrowers take loans directly from that shared pool. You can access Lending Vaults.

Question 2

What happens to the assets that I lend out?

Accepted Answer

When you lend assets, they are added to the lending vault together with assets from other lenders. When someone borrows that token, the loan comes from the shared vault. The interest paid by borrowers is then distributed pro rata among all lenders based on their share of the vault. Quick definitions Pro rata: distributed proportionally according to how much each participant contributed.

Question 3

Can I always withdraw my assets?

Accepted Answer

You can withdraw your assets as long as they are not currently borrowed. If most of the vault's assets are already being borrowed, meaning the utilization rate is high, you may need to wait until some borrowers repay their loans or new lenders add more liquidity. During such period, the lending rate would be extremely high, incentivizing more depositors to join the vault, or forcing borrowers to repay some of their debt. This means in practice, period of high utilization rarely least long. Quick definitions Utilization rate: the percentage of total deposited assets in a vault that is currently borrowed.

Question 4

How is the lending rate determined?

Accepted Answer

The lending rate depends on the utilization rate. When more of an asset is borrowed, or when lenders withdraw from the vault, the rate goes up. When borrowing demand is lower, or when more lenders add liquidity, the rate goes down. This market driven mechanism helps balance supply and demand and keeps rates in line with the broader DeFi market.

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