The Process of Lending Tokens on Ola Finance
Lending is the process of depositing (i.e. supplying) tokens to a pool. In exchange for providing liquidity to this pool, users receive interest on the tokens they have deposited. The interest that lenders receive comes from other users who are paying interest to borrow tokens.
Lenders are able to withdraw their tokens at any time (as long as they aren't being used as collateral to borrow tokens and not all the tokens are being borrowed). There is no time lock or withdrawal penalty.
Ola Finance is a gateway to numerous lending networks across different blockchains. To get started, you must first decide which lending network you want to participate in. Some things to consider before interacting with a given lending network:
- The Creator: make sure you trust the entity behind this lending network
- The Blockchain: gas fees (inherent cost of doing transactions on a blockchain) vary, so make sure you're willing to pay the current fee
- The Tokens: each lending network supports lending/borrowing for different tokens, so familiarize yourself with all the listed tokens
- The Interest Rates: each lending network has different interest rates and incentives; make sure you understand the costs/returns that apply to your position and are happy with them
After depositing your tokens, the pool will mint oTokens - or "receipt tokens" - and credit you. These oTokens show that you have supplied assets to one of Ola’s lending networks. When you go to withdraw your tokens from the supply side, the system will ask for those oTokens back - so make sure you hold on to them!
The conversion rate from oTokens to the deposited token absorbs the interest that borrowers pay. This means that when you withdraw your tokens, you will receive more than you started with, proportional to the token's APY.
It is important to note that APYs in Ola's MMs are floating and not fixed. Rates get updated on a per-block basis and can fluctuate significantly within relatively short time spans. Rates that lenders receive are determined by the rates that borrowers pay (see Paying Interest for more details).
Let's walk through an example. Say you deposit 10 ETH with an average APY of 5%. First, you will notice that your wallet now has 10 ETH worth of oETH in it - these are your receipt tokens. When you go to withdraw your ETH after 1 year, you will trade back the oETH and receive 10.5 ETH in return (your original 10 ETH plus the 5% APY).