The Pool Mechanism

What is a Pool ? ⚖️

A pool is a shared reserve supplied by users like you. It serves as the foundation of Colend, where lenders and borrowers interact.

How do Pools Work ? ⚙️

The pool operates using these fundamental mechanisms :

1 - Lenders Supply Assets

• Lenders deposit their digital assets into the pool, forming a collective reserve that becomes available for borrowing.

• Each deposited asset contributes to the pool’s total liquidity, making it easier for borrowers to access funds when needed.

2 - Borrowers Deposit Collateral (Guarantee)

• Borrowers must supply a collateral (a guarantee, such as WBTC or other cryptocurrencies supported by Colend) to secure their loans.

• They pay interest to the lenders who have supplied assets to the pool.

3- Interest Rates Adjusted by Pool Usage

The protocol adjusts interest rates depending on the utilization rate (the percentage of the pool currently borrowed).

• Low Utilization : Borrowing costs are reduced, encouraging borrowers to take loans.

• High Utilization : Borrowing costs increase, incentivizing lenders to deposit more assets and ensuring the pool remains liquid.

Understanding APYs 💰

In Colend, the Annual Percentage Yield (APY) represents how much interest is earned or paid over a year. Understanding APYs is key to making informed decisions when borrowing or supplying assets.

• When You Borrow : The APY reflects the interest rate you’ll pay on the borrowed funds. It’s dynamically adjusted based on the pool’s utilization rate,

• When You Supply : The APY represents the interest you’ll earn for supplying your assets to the pool coming from borrowers.

In essence, the pool acts as a decentralized marketplace for liquidity, where lenders and borrowers benefit from transparent and secure exchanges.