# Lending

Lenders deposit Asset Tokens into the Pair and in return receive the corresponding number of Asset Shares (fTokens) depending on the current Share Price.

At any time a Lender can exchange their fTokens for the underlying Asset Tokens at the rate given by the current price. The fToken Share Price increases as more interest is accrued.

Accruing interest is the only operation which can change the Share Price. Because interest accrual is always positive, the number of Asset Tokens that each fToken is redeemable for cannot decrease.

### A Lending Example

Alice has deposited 100 FRAX tokens to be lent out to borrowers, the initial fToken Share Price was 1.00 and she received 100 fTokens. Since her initial deposit, the pair has earned 10 FRAX of interest. So the Amount shows 110 (100 deposited FRAX + 10 FRAX earned as interest). The current fToken Share Price is 1.10 (110 FRAX / 100 fTokens)

Asset Vault AccountTotal

Amount

110

Shares

100

Alice Share Balance (fToken)

100

Bob Share Balance (fToken)

0

If Bob now deposits 100 FRAX for lending we would see the following changes. First the Amount in the pair will increase by 100. The current Share Price for fTokens is 1.10. Therefore Bob will receive 90.91 (100 / 1.10) fTokens for his deposit. The Asset Vault Account now looks like this:

Asset Vault AccountTotal

Amount

210

Shares

190.91

Alice Share Balance (fToken)

100

Bob Share Balance (fToken)

90.91

As interest accrues, the Amount increases. If an additional 20 FRAX are accrued as interest the Asset Vault Account looks like this:

Asset Vault AccountTotal

Amount

230

Shares

190.91

Alice Share Balance (fToken)

100

Bob Share Balance (fToken)

90.91

The Share Price has now increased to 1.2048 (230 FRAX / 190.91 fToken). This means that Bob can redeem his 90.91 fTokens for 109.52 FRAX. Likewise, Alice can redeem her 100 fTokens for 120.48 FRAX.

Over time, as more interest accrues, Alice and Bob can redeem their fTokens for an ever-increasing amount of the underlying asset.

Last updated