# 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. 

![](/files/TPNe3XehsP1b3OlHKNzQ)

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

![](/files/3D1lbWkhCdwkO7ybngh3)

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

![](/files/0pv0HhiNiCxVN3sNds2d)

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. 

![](/files/kCiDd4bk5c7rZ2sw8qhE)

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


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