DeFi Deep Dive
Lending and liquidations · 1/2

Overcollateralized credit

collateral$150borrowed$100liquidation threshold

Protocols like Aave let you deposit assets to earn interest and borrow against them. Because there are no credit checks, every loan must be overcollateralized: deposit 150 dollars of ETH to borrow 100 dollars of stablecoins.

Interest rates float with utilization. When most of a pool is borrowed, rates rise to attract deposits and encourage repayment.