How this DeFi lending protocol aims to change ADA hodlers’ habits

Loan bonds and permissionless pool ownership are innovative solutions addressing traditional crypto strategy limitations, like hodling. Lenfi, a DeFi lending protocol, simplifies lending and borrowing for ADA and native token holders on the Cardano blockchain.

Decentralized finance (DeFi) lending is a transformative innovation that reshapes investors’ engagement by enabling direct peer-to-peer financial services. Blockchain technology allows borrowers and lenders to interact directly and autonomously through smart contracts. Borrowers enjoy better access to loan services while facing fewer bureaucratic and financial barriers than traditional methods offer.

DeFi lending protocols can run on various blockchain networks, and among them is Cardano, renowned for its research-driven approach. Cardano’s  layered architecture , designed with scalability in mind, separates the settlement and computational layers —allowing for more efficient processing of transactions.

In Cardano, stakeholders who have delegated their tokens to a stake pool receive rewards every five days, but it decreases over time due to the limited supply. As rewards diminish, savvy users will seek alternative methods to maximize gains, turning to decentralized liquidity protocols for assistance.

DeFi lending on Cardano

Lenfi is a lending solution that provides Cardano ( ADA ) or Cardano Native Token holders better ways to utilize their assets through tokenizing user interactions. Lenfi transforms borrowers’ debt and the associated collateral into a transferable digital format via loan bonds. Suppliers and borrowers can list their nonfungible token (NFT) bonds in a dedicated marketplace.

Every depositor receives LP tokens representing a share of the underlying pool. Source: Lenfi

Lenfi also introduces the concept of Permissionless Pool Ownership, where users can create and manage their liquidity pools without centralized authorization. This feature democratizes access to liquidity provision and allows for a more diverse and dynamic lending environment.

As a decentralized liquidity protocol, Lenfi addresses the limitations of traditional hodling —  long-term investing with digital assets . When investors choose to hodl, they may suffer from diminishing staking rewards. ADA holders can diversify their investment strategies on Lenfi and surpass traditional staking models.

DeFi users can supply assets by depositing native tokens into a smart contract on Lenfi’s platform, thereby earning algorithmically calculated interest. Simultaneously, borrowers obtain loans from a pool provided by lenders and must maintain a certain ‘Health Factor’ to prevent their collateral from being liquidated. If a borrower’s Health Factor falls below 1, their collateral is liquidated, ensuring loans are adequately collateralized and maintaining stability in the system.

Lenfi introduces isolated liquidity pools that allow users to supply ADA specifically against stablecoins or supply stablecoins against their preferred Cardano native tokens — tailoring their investment approach.

How borrowing works on the Lenfi protocol. Source: Lenfi

Lenfi adopts a pooled lending approach that enables lenders to hedge their positions. Lenders can choose the collateral token for the pool and lend against ADA, stablecoins or other tokens with deep liquidity on the Cardano network.

Empowering users with advanced trading tools

Using the Lenfi platform, borrowers use capital to trade other financial assets, increasing their purchasing or selling power beyond the funds available in their wallets​​. Users also can short-sell by borrowing and selling assets, expecting a price drop.

Lenfi also allows users to leverage yield farming strategies, enabling them to borrow tokens and leverage the difference in annual percentage yields (APYs). Users who want to learn about progress toward mainnet deployment can get early access to the testnet version.

Blockchain-specific lending protocols are helping the industry grow with its digital services regardless of geographic location or economic background. Key industry figures’ predictions strengthen this view, with tokenization powering much of the DeFi sector in 2024 . With innovative approaches to different blockchains, DeFi can discover new horizons by offering a more diverse selection of ways for investors to handle their holdings.