Lending application

As discussed previously, lending can be combined with a vault, meaning the pooled resources can be used for lending.

Everyone knows what lending is. You lend money to your friend, or in other words, your friend borrows money from you. You charge interest to this lending process. After a certain period of time, your friend pays back the money to you with the interest.

You may lend money to your friend out of kindness, but banks lend money to companies for profit. Companies borrow money so they can expand their businesses.

You can also create a lending application on top of the blockchain. So, users can borrow assets from smart contracts. Later, borrowers need to return the assets with the interest. If not, their collateral will be liquidated.

You can visualize a lending protocol in the following image where User A provides 4000 USDT as an asset in the lending protocol so User B can borrow 1000 USDT.

Figure 15.2: A lending protocol...