Lending Protocol
A contract-based market where users supply assets to earn interest and borrow against collateral.
Protocols such as Aave and Compound pool deposits and lend them out against overcollateralised positions, with interest rates set algorithmically by how much of the pool is borrowed.
Borrowers monitor a health factor. If collateral falls or debt grows past the threshold, liquidators repay the loan and take a discounted slice of the collateral.