DeFi Lending — Aave, Compound & Beyond

Overview

Decentralised lending protocols let you supply and borrow assets without intermediaries. Learn how Aave, Compound, and other protocols work, including liquidation mechanics and yield dynamics. Understanding protocol risk is critical — review our breakdown of DeFi lending risks including oracle attacks and flash loans before committing significant capital. For yield without price exposure, pair this knowledge with stablecoin yield strategies. Keep your assets safe by following best practices in our crypto security guide and storing funds in wallets covered by our wallet guides.

Key Takeaways

• Supply assets to lending pools → earn variable interest from borrowers.
• Borrowers must over-collateralise (typically 120-150%) — this protects lenders from default.
• Liquidation: if collateral value drops below the threshold, the protocol automatically sells it to repay lenders.
• Utilisation rate: when pools are heavily borrowed, supply rates spike — and so does withdrawal risk.

Practical Tips

• Use blue-chip protocols (Aave, Compound) with long track records and audited code.
• Monitor the utilisation rate: if it's above 90%, you may not be able to withdraw instantly.
• Consider lending stablecoins on Aave V3 — lower IL risk and competitive yields.