TL;DR
A lending protocol lets you deposit crypto to earn interest from borrowers, or borrow crypto by providing collateral — all peer-to-protocol without intermediaries.
Lenders deposit tokens into a pool and earn interest. Borrowers provide collateral (worth more than they borrow) and pay interest. If a borrower’s collateral falls below the required ratio, it’s liquidated. Interest rates float based on pool utilization: when most of the pool is borrowed, rates rise to attract more lenders and discourage borrowing. When utilization is low, rates fall.
Kamino Finance is the current leader with integrated lending, liquidity vaults, and leveraged strategies. MarginFi offers straightforward lending/borrowing with points incentives. Solend was Solana’s first major lending protocol. Each has different risk parameters, supported collateral types, and interest rate models. Yield varies by asset — stablecoins typically earn 5-15% APY, while volatile assets earn less.
Earn passive yield on idle assets by lending. Borrow stablecoins against SOL to get USD exposure without selling (useful for taxes). Create leverage by borrowing and buying more of the same asset. Short tokens by borrowing and selling them. Fund purchases without liquidating long-term holdings. Always maintain healthy collateral ratios to avoid liquidation, especially during volatile markets.