FullDAO builds lending feature using a Peer-to-Pool lending model, a common and popular form of lending among Defi lending applications.
In order to understand how FullDAO Lending works, it is essential to know the key concepts of traditional Peer-to-Peer lending model.
Peer-to-peer lending (P2P) brings together individuals or businesses that want to lend their money to those who want a loan. This type of lending usually uses some websites / platforms that connect borrowers directly to lenders.
It's based on crowd-funding model and has existed since 2005. Peer-to-peer lending aims to reduce the fees by cutting out the financial institution (such as bank, insurance company) as middleman.
Peer-to-Pool is another form of lending where lenders supply their crypto assets (provide liquidity) to a pool and borrowers take these assets from that same pool as a loan (borrow liquidity). Instead of lenders and borrowers interacting directly with each other, they interact with FullDAO's lending pools.
These pools are generated from smart contracts on EVM compatible blockchains and automatically calculate the interest rates that lenders earn and borrowers pay. The interest rates calculation will be demonstrated more detail here.
FullDAO's Peer-to-Pool lending feature based on a mechanism known as over-collateralization lending (i.e full-collateralization lending).
Over-collateralization loan means that in order to borrow assets, borrowers need to provide cLPs or cTokens (cAssets) as collateral assets which have higher value than their loans. Not only that, there will be a collateral ratio to make sure that the loans do not exceed the collateral assets.