DeFi lending lets you earn yield by supplying assets to an on-chain money market, while borrowers post collateral to take loans against that pool. No bank sits in the middle. Interest rates are set by supply and demand in code, and audited smart contracts on Stellar settle every position.
This guide covers the basics in plain English: how supplying and borrowing fit together, where the yield actually comes from, what the risks are, and how to start on the XOXNO lending markets.
What is DeFi lending?
DeFi lending is a peer-to-pool money market. Instead of matching one lender to one borrower, everyone who supplies a given asset shares a single pool, and everyone who borrows that asset draws from it. Rates, collateral, and liquidations are handled by open-source code, not a company.
You interact with the market straight from a wallet. There is no account to open and no approval to wait for, it runs around the clock, and you keep custody of your funds the whole time.
How supplying works
When you supply an asset, it joins the shared pool that borrowers draw from, and you earn a slice of the interest they pay. A few things set this apart from a savings account:
- Interest accrues continuously. Your balance grows every ledger, so there is nothing to claim and no payout schedule.
- No lock-up. Withdraw part or all of your balance whenever you want, as long as that liquidity is not currently borrowed out.
- Your supply can double as collateral. Once supplied, an asset can back a loan of your own, so the same deposit both earns yield and opens up borrowing power.
Live supply rates for each market are on the lending markets page.
How borrowing works
To borrow, you first supply collateral. The protocol then lets you draw a loan up to a fraction of that collateral's value, its loan-to-value (LTV) limit. Your collateral keeps earning interest while it backs the loan, so borrowing is a way to get liquidity without selling what you hold.
Say you supply XLM as collateral and borrow USDC against it. You now have dollars to use while keeping your XLM exposure. You pay borrow interest until you repay, and you stay responsible for keeping the position healthy (more on that below).
Why do lending yields exist?
Yield is borrower interest paid back out to suppliers, not something conjured from nowhere. The variable that drives it is utilization: how much of a market is borrowed relative to how much is supplied.
| Utilization | What it means | Effect on rates |
|---|---|---|
| Low | Lots of idle supply, few borrowers | Rates stay low |
| Moderate | Healthy balance of both sides | Rates rise gradually |
| High | Most of the pool is borrowed | Rates rise sharply to attract supply |
As utilization climbs, borrow rates rise. That both rewards suppliers and pulls in new supply to rebalance the market. The loop is what keeps a pool liquid without anyone setting rates by hand.
High utilization means higher yield, but also less spare liquidity for withdrawals. Deep, well-supplied markets give you the best balance of the two.
What are the risks?
DeFi lending is real finance, and it carries real risk. The main ones:
- Liquidation risk. If you borrow and your collateral falls too close to your debt, part of your position can be liquidated at a discount. See our guide to liquidation risk.
- Smart-contract risk. The protocol is code, and a bug could put funds at risk. XOXNO mitigates this with audited, open-source contracts and timelocked governance, but no protocol is bug-proof.
- Market and oracle risk. Prices come from on-chain oracles. Extreme volatility or a bad price feed can trigger liquidations faster than expected.
Supplying a stablecoin like USDC without borrowing carries none of the liquidation risk. It is the simplest, lowest-risk way to start.
How DeFi lending works on XOXNO
XOXNO's Stellar lending is a Soroban-native money market with a simple shape:
- One central pool for all assets instead of fragmented markets, which keeps liquidity deep and rates efficient.
- Non-custodial and open-source. Every supply, borrow, and liquidation is executed by smart contracts on Stellar, and you keep custody throughout.
- Isolated positions, each with its own collateral and health factor, plus e-mode for correlated assets and flash loans for advanced strategies.
- Timelocked governance. Parameter changes are proposed on-chain and delayed, so nothing changes under you without notice.
To amplify yield on correlated assets, multiply loops a position for you using flash loans, all in one transaction.
How to start
- Connect a Stellar wallet on the lending markets.
- Supply an asset. USDC is the simplest starting point, and your balance begins earning immediately.
- (Optional) Borrow against your supply, keeping the loan well below your limit.
- Manage and withdraw any time. There are no lock-ups.
New to putting stablecoins to work? Read how to earn yield on USDC next, and if you plan to borrow, get familiar with liquidation risk first. Need to move funds in? The swap gets you into USDC or XLM in one step.
