# Lending & Borrowing

* **Lender** lends out idle crypto assets to earn interest payment from lending fee
* **Borrower** deposits crypto assets as collaterals & pays borrowing fee to borrow assets
* interest changes from time to time based on liquidity utilisation rate
* most platforms require over-collateralisation, borrowers can only borrow up to a percentage (mostly 75-90%) of the loan-to-value (i.e. deposited collaterals)
* force liquidation happens when the value of deposit assets are not enough to cover the assets borrowed

### How liquidation works

* borrower deposits 10 ETH to borrow 7.5 ETH worth BTC (max LTV = 75%)
* if the liquidation threshold is 80%, either the price of BTC raises or ETH drops, the value of borrowed asset worth more than 80% of the collateral will trigger liquidation
* liquidator can liquidate an unsafe position 
  * liquidator sells borrowers's ETH collateral for BTC
  * liquidator replays outstanding BTC debt & keep remaining collateral 
  * borrower keeps the borrowed asset & lost collateral in a loss
  * this incentivises liquidator to maintain health of the protocol

### Advantage vs. traditional financial process

* **Decentralised** - no centralised entity, no approval required from 3rd party
* **Instant** - instant loan with no delay & loan review
* **Transparent** - can clearly trace how deposited assets are secured & used by the protocol
* **Trustless lending** - borrowers' capital are protected by incentivised liquidation mechanism