Lending Protocol Design

Definition ∞ Lending protocol design is the architectural framework and rules governing how digital assets are lent and borrowed on a blockchain. This encompasses the foundational structure and operational parameters that dictate how a decentralized lending platform facilitates the borrowing and lending of digital assets without intermediaries. It includes mechanisms for collateralization, interest rate determination, liquidation processes, and risk management. Effective lending protocol design balances capital efficiency with security and user protection.
Context ∞ News frequently analyzes different lending protocol designs, particularly after market volatility or security incidents, to assess their resilience and efficiency. Debates often focus on the optimal balance between decentralization, governance, and risk parameters within these protocols. The evolution of lending protocol design is a key indicator of innovation and maturation within the broader decentralized finance landscape.