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How does lending and borrowing work on Blend?
Borrowers deposit collateral
A borrower deposits collateral and borrows an asset enabled by the selected pool. Blend’s borrower documentation expresses the collateral requirement as: collateral value = liability value ÷ (liability factor × collateral factor). The factors are pool-specific, not a universal Stellar rule.
Blend illustrates the formula with a collateral factor of 0.5 and a liability factor of 0.9: a $450 liability requires $1,000 of collateral under those example values. This is a worked illustration, not a recommendation or evidence of any live pool’s parameters. If collateral value falls or the liability’s value rises enough to breach the pool’s requirements, the position can be liquidated.
Lenders supply assets
Lenders supply assets to a pool, where Blend smart contracts control them. Blend says borrower interest is distributed to lenders according to utilization. Interest is compensation for taking risk, not a promise of a particular return or repayment of principal; the available sources do not establish a current yield for any pool.
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What risks do borrowers face?
Liquidation and loss of collateral
A price move in the collateral, the borrowed asset, or both can make a position fall below its required ratio. Liquidators may repay a borrower’s liability in return for collateral. Blend warns that the collateral claimed may be worth more than the debt repaid because a liquidator can demand a liquidation premium. A borrower can therefore lose more collateral than they might expect from simply repaying the loan.
There is no single safe collateral ratio for Stellar DeFi: the relevant assets, collateral and liability factors, and liquidation terms depend on the pool.
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Oracle-dependent valuations
Pools use oracles to value assets. Blend advises users to check whether a pool’s oracle contract is trustworthy and warns that users could lose funds if an oracle stops functioning. Stale, unavailable, or manipulated prices can distort borrowing capacity and liquidation decisions. Oracle providers and safeguards are not necessarily the same across pools.
What risks do lenders face?
Bad debt and withdrawal constraints
Blend’s FAQ warns that volatile assets can create bad debt and that lenders may lose assets if bad debt exceeds the assets backstopping the pool. During a sharp market move, collateral may be difficult to sell or liquidate quickly, especially if market liquidity is thin or related assets fall together. A displayed yield or a calm-market liquidity snapshot does not establish that withdrawals or liquidations will work smoothly under stress.
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A contract defect or exploit can cause losses. Blend says its contracts have been audited, but an audit is not a guarantee: it covers a particular scope and version and cannot rule out undiscovered defects or later code changes. The Stellar Development Foundation (SDF) recommends checking that public audit reports identify the code version, findings, and remediation, and that the audited code matches the production deployment.
Users should also understand who can pause a protocol, upgrade contracts, or change risk parameters, and how those powers are governed. SDF’s security guidance recommends documented risk procedures, meaningful multisig thresholds, secure key storage, timelocks for non-urgent changes, and clearly scoped emergency powers. These are recommendations, not proof that a particular pool follows them.
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Asset, counterparty, and ledger exposure
A supported token can carry risks beyond price volatility, including issuer or counterparty exposure, redemption limits, bridge dependencies, and weaknesses in connected protocols. Being on Stellar—or being described as a stablecoin—does not establish that an asset is risk-free or always redeemable at par. Blend’s risk framework identifies smart-contract, counterparty, and market risks in assessing collateral assets, while SDF warns that failures can propagate through interconnected protocols.
Blend also identifies Stellar protocol ledger risk as a category to consider. Application-level protections do not remove underlying ledger risk; the available material does not quantify that risk.
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Do isolated pools and backstops prevent losses?
Isolation limits some direct spillover
According to the SDF’s Blend & Meru case study, Blend’s isolated-pool design makes a user’s position in one pool independent of their involvement in other pools. Bad debt, liquidation, or bad oracle data in one pool should not directly affect users in another. This is a containment feature, not a guarantee against losses inside the affected pool or against shared dependencies and wider ecosystem effects.
A backstop can absorb some shortfalls
The case study describes each pool’s backstop fund as first-loss capital when liquidation proceeds do not cover liabilities. It can mitigate a shortfall, but it is not insurance and does not guarantee full lender recovery. Its capacity and exposure are limited, so a reader should check the specific pool’s current funding and rules rather than assume a particular level of coverage.
How should you assess a Stellar lending pool?
Check the exact pool you plan to use; a protocol-level description is not a review of a live pool. For a comparison between pools, use the same questions for each one:
- Assets and terms: Which assets can be supplied, borrowed, or used as collateral? What are the collateral and liability factors, utilization caps, and liquidation mechanics?
- Oracle: Which provider and contract value each asset? What happens if prices stop updating, diverge from markets, or become unavailable?
- Liquidity under stress: How much liquidity is available for withdrawals, and could collateral plausibly be liquidated during a sharp market move? Do not infer stress performance from a quiet-market snapshot.
- Backstop: What are the pool’s funding and backstop rules, and what limits apply to the protection they offer?
- Code and governance: What version is deployed? Do public audits match it, and are findings and remediation documented? Who can pause, upgrade, or change parameters, and what process or delay governs those actions?
- Asset dependencies: Who issues or governs each token? Consider redemption, bridges, external protocols, liquidity, and concentration in assets that may fall together.
SDF’s Justin Rice, in “Stellar DeFi Security Standards and Best Practices,” describes oracle manipulation, novel flash-loan patterns, governance takeovers, and admin-key compromises as “a baseline operational risk for any protocol of meaningful size.” This is SDF’s security-guidance statement, not a quantified measure of how often such incidents occur.
Can a hardware wallet make lending or borrowing safer?
A hardware wallet may help protect private-key custody. Stellar’s wallet integration documentation lists Ledger hardware wallet support, and an SDF announcement documented Stellar USDC support on Ledger Nano X, Nano S, and Nano S Plus. Check current compatibility among the asset, wallet, and DeFi interface before relying on a particular device. A hardware wallet cannot prevent liquidation, an oracle failure, bad debt, a pool insolvency, or a smart-contract exploit.
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