How DeFi Lending Works

DeFi lending protocols like Aave and Compound allow users to lend and borrow crypto assets without intermediaries. Lenders deposit assets into a pool and earn interest. Borrowers post collateral (typically 150%+ of the loan value) and pay interest. Interest rates are determined algorithmically based on utilization rate — the ratio of borrowed assets to total deposited assets. High utilization means high interest rates (incentivizing deposits and discouraging borrowing), and vice versa.