What is lending?
Lending assets is a convenient and safe way to earn rewards on the tokens you have sitting in your wallet. Simply enter the amount of tokens you want to lend, and your loaned assets will begin accruing rewards daily. You can withdraw your assets and rewards at any time.
How does it work?
When you lend tokens, you deposit them into a pool of loaned tokens, known as a lending pool. MetaMask has partnered with Aave to provide you convenient access to Aave’s lending pools.
Users borrow tokens from lending pools, while lenders, like yourself, earn interest paid by borrowers. Interest is compounded with every new block with the most up-to-date APR (Annual Percentage Rewards). This percentage is based on the demand for borrowed tokens, and you can check the current APR anytime on the MetaMask mobile app.
When you lend tokens, you’ll receive aTokens in return. aTokens, such as aUSDC and aDAI, represent the amount of tokens you have loaned with Aave, and automatically increase with the rewards you’ve earned. These aTokens give you the ability to withdraw your tokens at a 1:1 ratio. You can trade aTokens as you would other tokens, but doing so affects the amount of rewards you earn and how many loaned tokens you can withdraw. For more information on aTokens, see our guide here.
Let’s say you loan 100 USDC into the Aave protocol and automatically receive 100 aUSDC in return. Over time, your loaned USDC earns compounded rewards, resulting in your aUSDC increasing to 115.
You decide to spend some aUSDC on a coffee using MetaMask Card, leaving you with 110 aUSDC. 110 aUSDC is the new amount that will earn compounded rewards.
You then decide you’re ready to withdraw your loaned USDC. You return your 110 aUSDC to the protocol, and receive 110 USDC in return.
When you’re ready to withdraw your loaned tokens and rewards, you can do so immediately, without any waiting period. Keep in mind that the longer you keep your tokens loaned, the more interest you’ll compound. See our risk disclosure for more information about withdrawing your tokens.
Technical details
Lending is run by lending protocols — a powerful series of smart contracts that oversee the transfer of assets.
What are smart contracts?
Smart contracts are blockchain programs that automatically execute transactions based upon predetermined rules. With smart contracts, no intermediaries decide if the terms of an agreement need to be followed; instead, a smart contract will always be mathematically triggered to execute an action when certain conditions are met.
Because they oversee the transfer of assets, it’s essential to use well-written and well-audited smart contracts. MetaMask has partnered with Aave, a lending protocol run by highly tested smart contracts to ensure the safety of user funds. You can read more about Aave here.
Lending protocols are divided into lending pools, the specific instances where loaned tokens are pooled together to supply tokens for borrowing. Lending pools each have their own interest rates based upon the ratio of supplied tokens to borrowed tokens. The more demand a token has to be borrowed, the higher the interest will be. Interest on loaned tokens compounds over time.
When users supply tokens into lending pools, they lock up those assets while the tokens remain deposited. However, lenders maintain full custody of their tokens, so they can withdraw their tokens and rewards at any time, without permission from an intermediary.
When a user borrows from a lending protocol, they have to provide collateral greater than the amount borrowed. In order to get their collateral back, the borrower needs to repay the loaned tokens, plus interest.