Lending
Lending & Borrowing on LayerBank
![](https://docs.layerbank.finance/~gitbook/image?url=https%3A%2F%2F342097286-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252Fvi5sScuffF7lLX6pHEo5%252Fuploads%252FTUcTo4TfpKDYC5QUckHB%252Flending.png%3Falt%3Dmedia%26token%3Db63e295a-e03d-4710-a25e-b6194e532f2a&width=768&dpr=4&quality=100&sign=6aded23c&sv=1)
LayerBank's money market, built on an over-collateralization model, streamlines the process for users to supply assets, secure loans, and earn LAB tokens as rewards for their activities. In this setup, users contributing liquidity to LayerBank's market are awarded lTokens. These lTokens reflect their share in the loan pool and their value escalates over time due to the accumulation of interest. When users decide to settle their loans, they can exchange these lTokens for their original deposit, now increased in value.
lTokens represent the accrued interest on the pool's tokens and serve as evidence of the collateral provided by lenders to LayerBank. At the launch of LayerBank, lTokens start with a 1:1 exchange rate with the original tokens. This rate, however, adjusts upward as interest accrues, shifting the exchange rate accordingly (for example, from ETH : lETH = 1 : 1 to ETH : lETH = 1 : 1.x, where 'x' denotes the accumulated interest).
To initiate a loan, borrowers must activate the 'collateral switch', using their deposited assets as collateral. This enables them to borrow in proportion to the value of their assets. For example, by depositing USDC and borrowing against it, the USDC is converted into lUSDC.
The value of lUSDC increases with the Supply APR, and simultaneously, the quantity of borrowed USDC grows due to the Borrowing APR. In practice, depositing 100 USDC as collateral to borrow 50 USDC results in receiving lUSDC equivalent to 100 USDC, with an increasing rate. The borrowed 50 USDC also escalates in amount (51 USDC, 52 USDC, and so on) over time. Closing the loan involves repaying the augmented amount, necessitating careful management of the position as the borrowed sum can expand more rapidly than the value of the deposited assets.
100% code-based environment
The entire lending system of LayerBank operates in a fully code-dependent environment. This digital infrastructure eliminates the need for traditional intermediaries, thereby streamlining the process. Additionally, it features an automated mechanism for modifying borrowing and lending rates. These adjustments are based on predefined criteria, such as the capital utilization rate within the pool. For example, a surge in the capital utilization rate triggers an increase in interest rates, thereby encouraging borrowers to repay their loans sooner. This strategy ensures the constant maintenance of adequate liquidity levels, thereby offering a safer and more reliable experience for users.
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