Lending and Borrowing in DeFi Explained (A Case Study of Bencu Finance)

Illustration of Lending and Borrowing between 2 people
AAVE
  1. AAVEAave is arguably the biggest non-custodial liquidity protocol built on the Ethereum Network. According to Decrypt, Aave is a Defi lending protocol that lets users lend and borrow cryptocurrency without having to go through a centralized intermediary.
Abracadabra Money
Bencu Finance
  • You won’t need to sell your tokens just because you need another asset. Just provide the ones you have as collateral, then borrow against them.
  • When you deposit assets to these protocols, you earn interest on them. Bencu Finance offers the best of this.
  • Bencu also stakes your $Metis and $USDC and gives room for additional earnings on your supplied assets.
  • They are decentralized and don’t have any central entity in between. You are interacting with smart contracts.
  • They are open source which allows anyone to interact with these protocols anytime any day.
  • Liquidation Threshold To be simple, this means the percentage you’re allowed to borrow against your collateral. For example, if you provide collateral worth $1,000, and the liquidation threshold for the asset you want to borrow is 70%, then you can only borrow an asset worth $700. I hope you understand in this simple manner. These measures are put in place because of the high volatility in the crypto market, and to protect borrowers from being liquidated.
  • Loan Limit — This simply refers to the maximum amount a user can borrow based on the liquidity threshold after combining the value of all the assets in the account. This limit can be increased when users convert these deposits to collateral.
  • Loan Utilization / Health — If the loan utilization ratio range up to 100%, then, liquidation is bound to happen. This happens due to the daily fluctuation in price. Bencu protocol has combated this by setting a safety line of 90%. The safety line is set across all assets.
  • Liquidation Penalty — This happens when a user’s account is on pending liquidation. When this happens, anyone can buy the collateralized asset at a certain discount, which is a reward for the liquidator and also a penalty for the borrower. Different liquidation penalty applies though.
A Pool Full of Liquidity

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Dammy Dee

A seasoned Web 2.0 & Web 3.0 Content Writer || Blockchain Analyst || Direct-Response Copywriter || SEO Optimizer || Macroeconomics Analyst