Lending on Polyester allows users to earn yield on assets they supply and borrow assets against collateral, all within the same unified exchange system used for funding and trading.
Lending operates through a dedicated smart contract and shares the same asset representations, account structure, and on-chain guarantees as trading.
How Lending Works
Lending on Polyester operates through overcollateralized supply pools.
Users can supply supported assets to lending pools to earn interest (denoted in APY). Other users may borrow from those pools by posting collateral that exceeds the value of the borrowed amount. Interest rates adjust dynamically based on pool utilization.
Unified Capital, Isolated Risk
Lending shares the same uAsset layer as trading, but risk remains isolated at the contract level. Assets supplied to lending are governed entirely by the lending protocol’s rules and cannot be accessed by trading systems unless explicitly permitted by the user.
This allows users to move capital between funding, trading, and lending without withdrawals or bridges, while preserving strict boundaries around risk and solvency.
Supplying Assets
When a user supplies assets on Polyester, they are contributing liquidity to a lending pool.
Supplied assets are backed 1:1 by the same on-chain inventory system that backs the rest of the exchange. Supplying assets does not change ownership guarantees or introduce rehypothecation.
Suppliers earn interest generated by borrowers who use those assets.
Borrowing Assets
Borrowing on Polyester requires collateral.
Collateral is designated from assets a user has already supplied to lending pools. Marking supplied assets as collateral does not remove them from the pool or stop them from earning interest; it only determines whether those assets can be used to secure borrowed positions and be included in liquidation events.
If collateral value falls below required thresholds, positions may be liquidated to protect lenders and the protocol.
Risk and Liquidations
Lending risk on Polyester is managed through protocol-enforced liquidations.
Borrowing positions are continuously evaluated using a health factor that compares the value of collateral against outstanding debt. If a position falls below required thresholds, it becomes eligible for liquidation to protect lenders and maintain solvency.
Liquidations may occur either partially or fully. Large positions can be unwound in stages, while smaller or more severely undercollateralized positions may be liquidated in a single transaction. Liquidators repay debt in exchange for collateral at a protocol-defined discount, and any remaining collateral after repayment is returned to the user’s Funding Account. For more details on the costs of liquidations, see Liquidation Fees.
All liquidation rules and parameters are enforced by smart contracts, ensuring predictable behavior without discretionary intervention.
Transparency and Verifiability
Lending on Polyester is fully transparent at the protocol level.
Supplied balances, borrowed balances, utilization rates, and inventory backing are all observable on-chain. Solvency does not depend on trust in off-chain systems or opaque accounting.
While individual user positions are private, the system itself is continuously auditable.
Where to Learn More
For deeper details on Lending, see:
- Lending Account - how lending balances are tracked
- Supplying - how to supply assets and earn interest
- Borrowing - how borrowing works and what limits apply
- Collateral - how collateral is calculated and managed
- Interest - how rates are determined
- Liquidations - how risk is enforced and positions are closed
- Fees - how fees are assigned for lending