DeFi Lending Protocols: What Actually Differs Between Them

On the surface, most DeFi lending protocols look the same — deposit collateral, borrow against it, pay interest. The differences that matter are underneath.
Interest rate model: Some protocols use algorithmic rates that adjust automatically based on pool utilization. Others rely on governance-set rates that change less frequently. Algorithmic models react faster to demand but can spike sharply during volatility.
Collateral factors: Each protocol sets its own loan-to-value ratios per asset. A more conservative collateral factor means more security against liquidations but less capital efficiency for the borrower.
Liquidation mechanics: Some protocols use Dutch auctions for liquidated collateral, others use fixed liquidation bonuses paid to third-party liquidators. This affects how quickly bad debt gets cleared during sharp market moves.
Isolated vs. pooled markets: Newer protocols increasingly isolate riskier assets into separate markets so one bad asset can't drag down the entire protocol's solvency.
None of these differences are visible unless you read the documentation, not just the marketing page. Before depositing anywhere, it's worth checking all four points directly against the protocol's own docs.
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