Definition
A lending pool is a core DeFi concept where multiple users deposit crypto assets into a common smart contract that algorithmically manages lending and borrowing. Instead of matching individual lenders and borrowers, the protocol aggregates liquidity into a single pool per asset and sets interest rates based on supply and demand. Borrowers draw funds directly from this pool, typically after posting collateral and agreeing to the protocol’s risk parameters. The pool structure enables continuous liquidity, variable interest rates, and automated enforcement of rules such as collateral requirements and liquidation thresholds.
In protocols like Aave and Compound, each supported asset usually has its own lending pool with distinct interest rate curves and risk settings. Depositors receive tokenized claims on the pool that represent their share of the supplied liquidity plus accrued interest. The health of a lending pool is closely tied to metrics such as utilization, collateral ratio requirements, and the effectiveness of its liquidation mechanisms. As a concept, the lending pool abstracts away bilateral credit relationships and replaces them with programmable, on-chain liquidity managed by transparent smart contracts.
Context and Usage
Within DeFi, lending pools serve as the foundational liquidity layer that enables permissionless borrowing and lending without centralized intermediaries. Users interact with these pools through protocol interfaces, but the underlying logic is enforced by smart contracts that automatically track deposits, loans, interest accrual, and liquidation events. The design of a lending pool determines how collateral ratio rules are applied, when liquidation is triggered, and how interest is distributed among depositors.
Lending pools are often referenced when assessing the risk profile and capital efficiency of platforms such as Aave and Compound. Observers analyze pool composition, concentration of collateral types, and historical liquidation activity to understand systemic risk within DeFi markets. As a conceptual building block, the lending pool underpins many higher-level DeFi strategies and products, providing standardized, on-chain credit infrastructure that other protocols can integrate with or build upon.