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Lending Markets — How Deposits Work

· 4 min read

In this lesson, we will get acquainted with lending markets. These platforms are essentially digital banks that allow two groups of users to interact with each other. The first group wants to deposit their funds and earn a stable interest rate. The second group wants to borrow these funds while leaving certain assets as collateral.

At this initial stage, we will use lending markets only from the deposit side — without taking loans, without using collateral. Our goal is simply to deposit stablecoins and earn a stable yield.

Main lending markets​

Let’s briefly review several lending markets. There is Aave — the number-one platform and overall the safest and most reliable lending market in the ecosystem. Next to it is Compound. There are also other lending markets across various blockchains, offering different assets and interest models. However, for beginners, Aave and Compound are more than enough.

Later, if needed, you can switch to alternative networks where rates may be higher. For example, if you actively use the Solana blockchain, you can use Kamino Finance, where stablecoins can also be deposited for a stable yield.

How deposits work in practice​

First, we connect our wallet. I choose Browser Wallet, a connection window appears, and now I'm connected. The interface shows my available balance — the amount I can deposit right now.

As an example, let’s deposit 10 USDC at a rate of 6.5% APY.

The first transaction grants approval to the protocol to use my tokens.
The second transaction is the actual deposit.

Think of this as placing money into a digital bank account: you deposit funds into a common liquidity pool, and other users can borrow from that pool — not from you personally.

On Arbitrum:

  • Aave has approx. $77M deposited
  • Borrowers have taken $65M
  • Current deposit rate: 6.54%
  • 6-month avg: 8.3%
  • 12-month avg: 6.4%

If you deposit $1000, you will have approx. $1063 after one year.

Where does the yield come from?

  • Borrowers pay 8.8%
  • Depositors receive 6.5%
  • The difference is Aave's revenue.

Aave has many advanced features, but at this stage, the only thing you need is: deposit stablecoins → earn yield.

Providing liquidity on Uniswap requires adjustments, monitoring, rebalancing.
Lending markets allow you to earn ~7% APY passively.

Checking rates across networks​

Deposit and borrow rates differ by network.

Ethereum:

  • Current deposit rate: 6.12%
  • 1-year avg: 7.34%

Optimism: similar to Arbitrum.

ETH deposits: 1-year avg is 5.44%, lower than on Arbitrum.

If you have stablecoins you want to hold, the simplest approach:
deposit them into a lending market.

Example with Compound​

Compound works identically to Aave:

  • Users deposit funds
  • Others borrow them
  • Depositors earn the supply APY

On the Base network:

  • Current yield: 8% (higher than Aave)
  • Rates can spike (e.g., 15–19%), but short-lived
  • Long-term avg: 6.43%

Yield breakdown:

  • 5.58% — base yield (paid in stablecoins)
  • 1.26% — COMP token rewards
    Total: 6.85%

Deposit process:

  1. Approve protocol to use tokens
  2. Confirm deposit

Deposit is shown in the dashboard.
Interest accrues continuously.

Be aware of:

  • Smart contract risk
  • Stablecoin depeg risk

Both explained in previous modules.

Yield structure and examples​

Base rate example: 5.58%
Deposit grows from $10 → $10.56 in one year.

Rewards accumulate over time (COMP or other tokens).

Another example:

  • Deposit APY: 12.20%
  • Structure:
    • base yield — stablecoins
    • extra rewards — Fluid tokens

Fluid operates only on Ethereum.

Sometimes certain blockchains become temporarily popular.
Example: Kava currently shows 14% pure APY (no incentives).

Why?

  • High borrowing activity
  • High liquidity demand

Yield depends on:

  • Incentives
  • Borrow demand
  • Network congestion
  • Ecosystem trends

Moving assets between networks​

Method 1 — Bridges​

Use the integrated bridge aggregator:

  • Example: Arbitrum → Optimism
  • Pay only the blockchain gas fee

Works only between Ethereum-compatible networks.

Method 2 — Centralized exchanges​

Example workflow:

  1. Deposit stablecoins on Binance / Bybit
  2. Withdraw to a different network

You can deposit in one network and withdraw in another.

Example:

  • Deposit in Arbitrum
  • Withdraw in Solana

Requires a Solana-compatible wallet, not MetaMask.

Details covered in:

  • Crypto Wallets module
  • Security Basics module

What to do after this lesson​

If you have stablecoins:

  1. Withdraw to your self-custody wallet
  2. Open any lending market
  3. Make your first deposit

Interest begins accruing immediately.

Example from the lesson:

  • Deposited 10 USDT
  • After 10 minutes: already 0.000002 earned

Same on Compound — interest visible in withdrawals.

This is the simplest way to use lending markets:

  • Deposit only
  • No collateral
  • No loans
  • Fully passive income

Later, lending markets can be used for:

  • Borrowing against collateral
  • Using borrowed funds in higher-yield instruments

This will be shown step-by-step in the next lesson.

These materials are created for educational purposes only and do not constitute financial advice.