DeFi Protocols for Loanable Funds: Interest Rates, Liquidity and Market Efficiency

Understand

We coin the term *Protocols for Loanable Funds (PLFs)* to refer to protocols which establish distributed ledger-based markets for loanable funds.

• PLFs are emerging as one of the main applications within Decentralized Finance (DeFi), and use smart contract code to facilitate the intermediation of loanable funds.
• In doing so, these protocols allow agents to borrow and save programmatically.
• Within these protocols, interest rate mechanisms seek to equilibrate the supply and demand for funds.