# Lending, CDP, and Money Markets

### Money Markets

Conventionally, money markets were centralized structures facilitating the deals between lenders and borrowers.

* Borrowers approach money markets to get a short-term loan. 
* If the borrowers can’t pay back their loans, the lenders can sell the collateral to recover the loaned funds (liquidate). 
* When the loan is repaid, the collateral is returned. 
* Borrowers are required to pay interest to the lenders and a fee to the money market.

### #CeFi or #CeDeFi

Below is an example of how centralized finance (CeFi) lending works. The same model is used for so-called Centralized DeFi, where cryptocurrency is introduced into the picture but is used in a centralized manner. 

![](https://1367344826-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FJ1DkLCK0wJYWOSSmWEVo%2Fuploads%2F8eXTuVTwQ2bv4tPPfFFH%2Fimage.png?alt=media\&token=adfd3ac5-d3c3-4b95-8797-be3472b0285d)

A borrower borrows a $100 USDT using BTC as collateral. Since BTC is a volatile asset, there needs to be a certain overcollateralization to have an ability to liquidate and secure the lender. After a certain period, the borrower can use the borrowed asset for leverage trading, farming etc. In the end, the borrower has to return a larger amount of Tether to receive the collateral back. 

### Decentralized Money Markets

* Powered by blockchain technology and run by a smart contract 
* Immutable
* Decentralised
* Permissionless 
* Non-custodial 
* Composability 
* Overcollateralized

### #DeFi

![](https://1367344826-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FJ1DkLCK0wJYWOSSmWEVo%2Fuploads%2Fkzkuz7oDnUN6NrBLHl30%2Fimage.png?alt=media\&token=334b1b74-9af1-4fe7-a860-8b797f13dd7a)

In DeFi, a similar principle is used. Most often the currencies are different, instead of BTC, ETH is used as collateral. Examples of such projects are Compound and Aave.

### Decentralized stablecoin minting

![](https://1367344826-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FJ1DkLCK0wJYWOSSmWEVo%2Fuploads%2FkvnfNSVzcJdGnFm58qVZ%2Fimage.png?alt=media\&token=c91dd9fa-3810-4b2f-8fc2-0fba03763b1b)

A similar protocol can be used not only to lend and borrow a stablecoin, but also to mint it. MakerDAO and DAI is an example of such protocol. A CDP (a collateral debt position) is being entered by a borrower to mint and use the stablecoin. 

![](https://1367344826-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FJ1DkLCK0wJYWOSSmWEVo%2Fuploads%2FTN6aszflfciMgwFmPWVu%2Fimage.png?alt=media\&token=c20c6063-ba2e-481c-91f2-762258e51bf9)

GCD works similarly: ETH & GTON can be used by borrowers to mint it and later use it on the rollup as the native token.