DeFi Lending

Lending protocols, interest rates, collateralization, and flash loans.

Overview

Lending protocols enable borrowing and lending on-chain.

Lending Protocol Architecture

┌─────────────────────────────────────┐
│           Lending Pool              │
├─────────────────────────────────────┤
│  Depositors  │  Borrowers          │
│  (Supply)    │  (Borrow)           │
├─────────────────────────────────────┤
│           Interest Rate Model       │
│  (Utilization-based)                │
└─────────────────────────────────────┘

Interest Rate Model

contract InterestRateModel {
    uint256 public baseRate;
    uint256 public slope1;
    uint256 public slope2;
    uint256 public optimalUtilization;
    
    function getRate(uint256 utilization) public view returns (uint256) {
        if (utilization <= optimalUtilization) {
            return baseRate + (utilization * slope1 / 100);
        } else {
            uint256 extra = (utilization - optimalUtilization) * slope2 / 100;
            return baseRate + slope1 + extra;
        }
    }
}

Collateralization

# Calculate collateral factor
def calculate_collateral_factor(asset, risk_score):
    factors = {
        "ETH": 0.75,  # 75% collateral factor
        "WBTC": 0.70,
        "USDC": 0.85,
        "DAI": 0.80
    }
    return factors.get(asset, 0.5)

# Check liquidation
def check_liquidation(debt, collateral, price, collateral_factor):
    collateral_value = collateral * price * collateral_factor
    return debt > collateral_value

Flash Loans

// Aave-style flash loan
contract FlashLoanReceiver {
    function executeOperation(
        address asset,
        uint256 amount,
        uint256 premium,
        address initiator,
        bytes calldata params
    ) external {
        // Execute arbitrage or other strategy
        
        // Must repay loan + premium
        IERC20(asset).transfer(
            msg.sender, 
            amount + premium
        );
    }
}

Liquidation

def liquidate(underwater_position):
    # Calculate liquidation bonus
    liquidation_bonus = 0.05  # 5%
    
    # Get collateral
    collateral = underwater_position.collateral
    debt = underwater_position.debt
    
    # Liquidate
    liquidation_amount = debt * (1 + liquidation_bonus)
    
    return {
        "collateral_to_seize": liquidation_amount,
        "debt_to_repay": debt
    }

Practice

Build a simple lending protocol with interest accrual.