All about Lending

How do Lenders earn the money in your protocol and how much can they expect to make?

They literally just lend their Tezos or tzBTC holdings to farmers and get paid interest on this. Nothing more, nothing less. The interest rates on this are not very high (on average up to 10% p.a., but can be as high as 50% in times of high demand) but the risks of such lending are quite low and additionally Lenders are not required to anyhow exchange or transfer ownership of their Tezos (or tzBTC) holdings. This is great for Tezos investors  as in this arrangement they do not need to sacrifice their exposure for interest rate gains.

Still, how much do Lenders typically make?

Farming returns, as mentioned, vary depending on what percentage of the funds submitted by them get really utilized by Farmers. If this figure gets as high 100%, (all assets provided by Lenders are used by Farmers) you can get an annualized interest rate of almost 50%. In a more typical setup with utilization rates between 80 and 90%, the interest rate will be closer to 10%.

What about staking rewards? Do they disappear if I lend out my tokens?

Borrowed funds that get used in liquidity baking do not generate additional staking rewards. However, the part of assets that is not utilized by Farmers but provided by Lenders earns additional staking rewards. If the utilization rate is for example equal to 80%, then this means that the remaining 20% non-utilized tokens will earn the staking rewards (if they are initially eligible of course).

What is the “utilization rate” that you mention on your page for lenders?

Glad you asked! Well, this utilization rate just denotes how much of the lending pool provided by the lenders is utilized at any given moment by the farmers. If the utilization rate is low you get low interest rates and if it's high - the opposite. Ideally, we would like this figure to be around 80-90% since at this number the Lenders get pretty high interest while being easily able to withdraw the money.