Lending yield, and the borrower on the other side
Lesson 3 of 5
By the end of this lesson you’ll be able to say where a lender’s interest comes from and why the rate you saw yesterday means nothing today. You’ll know when a pool can refuse your withdrawal, who carries the loss when a borrower’s collateral isn’t enough, and what a fixed rate costs you.
One pool, two sides
Lesson 4 of How DeFi Works built the machine: lenders deposit into a pool, borrowers draw from it against collateral, and a liquidation sells the collateral when a loan goes bad.
Aave’s documentation says “Supplier yields are funded by borrower interest net of the reserve factor,” and its glossary defines the reserve factor as “A percentage of interest accrued by borrowers that is allocated to the Aave Treasury to help safeguard the protocol.”
Borrowers
Pay interest on what they draw
↓
The protocol
Keeps a slice, the reserve factor
↓
Lenders
Share the rest
Interest on its way through one pool.
Aave and Compound are named in this lesson as examples of how a pool works; neither is an endorsement.
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