# Lending ## **How LayerBank Works** LayerBank is a decentralized money market built on an over-collateralized lending model, allowing users to: * **Supply** assets and earn interest * **Borrow** against their collateral * **(Soon) Earn $ULAB rewards** for participating in the market *** ### **lTokens (Interest-Bearing Tokens)** When users supply assets to LayerBank, they receive lTokens representing their share of the pool. * **Initial Exchange Rate:** lTokens start at 1:1 with the underlying asset (e.g., 1 USDC = 1 lUSDC). * **Accrued Interest:** Over time, the exchange rate increases as interest accrues (e.g., 1 USDC = 1.03 lUSDC). * **Redemption:** When withdrawing, users redeem lTokens for their share of the underlying asset plus accrued interest. lTokens effectively track your position and the interest earned automatically. *** ### **Borrowing & Collateral** To open a borrow position, users enable collateral on their supplied assets. * **Borrow Limit:** Determined by the Max LTV (Loan-to-Value) of the collateral. * **Interest Accrual:** Borrowed amounts grow over time according to the Borrow APR. * **Example:** * Deposit 100 USDC → Receive lUSDC representing your deposit * Borrow 50 USDC → Owed amount grows as interest accrues * To close the position, repay the borrowed amount (plus interest) and withdraw remaining collateral > **Risk Note:** If the collateral value drops and exceeds the Max LTV threshold, the position can be partially liquidated to maintain solvency. *** ### **Dynamic Interest Rate Model** LayerBank operates in a fully on-chain, code-driven environment with no intermediaries. * **Utilization-Based Rates:** Borrow/Supply APRs adjust automatically according to pool utilization. * **Goal:** Keep liquidity healthy — higher rates at high utilization attract more suppliers and encourage debt repayment. * **Result:** A self-balancing money market with optimized capital efficiency. *** ### **Key Benefits** * **Trustless & Automated:** 100% smart contract based, no centralized custody * **Capital Efficiency:** Borrow up to the Max LTV while keeping collateral secure * **Transparent Yield:** lTokens make interest accrual transparent and verifiable on-chain --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.layerbank.finance/protocol/lending.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.