ELI5 DeFi
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Decentralized Lending

"Brother, can you spare a dime?" -Bing Crosby

Why should I lend?

Lending crypto is much like providing liquidity for trading on a DEX -- you can generate a passive income on your idle assets. Instead of getting a percentage of trade fees, you get loan fees.

Why should I borrow?

There are a number of reasons why you might want to borrow, but some reasons include
  • Making a profitable trade that's currently "out of your league"
  • Shorting one token against another
  • Going long on a token

How does lending crypto work?

In the most cases, crypto loans are over-collateralized. Lending contracts hold on to borrowers' collateral, and the collateral is worth more than the loan, so running away with the loan is a bad deal.
In some cases, there is no collateral, but the loan is guaranteed to be returned in another way: programmatically. Flash loans are a tool that allow anyone to borrow a large amount of money on the condition that it is returned immediately. More on that later.