# 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

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### **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.

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### **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.

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### **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.

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### **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