DeFi money market

The model is pool-based, not peer-to-peer. Interest accrues through deposit tokens: Aave uses aTokens, minted one to one on deposit, reflecting interest as a growing balance, while Compound uses cTokens, whose balance stays constant and which accrue interest via a rising exchange rate against the underlying. Rates follow a utilization model: Aave V3 uses two slopes with an optimal utilization point, so above that point the rate rises much faster to incentivize keeping liquidity available. Each collateral has its liquidation threshold, and a Health Factor below 1 triggers liquidation. In many markets it is overcollateralized: the borrower posts more value than they withdraw.

It is a core DeFi category: it offers yield to depositors and credit to borrowers automatically, without manual matching. It differs from P2P lending, where individual lenders and borrowers are paired, through its aggregated pool model and continuous liquidity.

Real examples include Aave V3, Compound with its cTokens, Morpho as an optimization and isolation layer over pools, and Spark, from the Sky ecosystem. A money market implements overcollateralization and liquidation, accepts liquid staking tokens such as stETH or wstETH as collateral, and differs from a CDP in that it lends real third-party deposits rather than minting a new stablecoin. Flash loans are often offered from these same protocols, as in Aave.