DeFi Lending and borrowing platform are crucial elements of today’s finance, and it is effectively taken care of by loans. In the decentralized realm, lending and borrowing can be taken care of by smartcontracts. DeFi lending and borrowing happens completely on a peer-to-peer basis, without involving any intermediaries.
To lend, it is only natural that one must have a receptacle of the asset that needs to be lent. In this case, the “asset” it’s declared as a liquidity pool. A liquidity pool is a repository of multiple tokens shielded securely by a smart contract. People can deposit the crypto-cash that they do not use through a smartcontract into this liquidity pool. Another user who expects to borrow some money can borrow from this pool. In nature, the liquidity pool functions as a bank.