> For the complete documentation index, see [llms.txt](https://docs.fathom.fi/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.fathom.fi/lending/core-concepts.md).

# Core Concepts

**Understanding Fathom Lending**

Fathom Lending allows users to lend and borrow cryptocurrencies. By providing liquidity to the protocol, lenders earn interest on their deposits, while borrowers can access these funds by providing collateral. The platform operates without intermediaries, leveraging smart contracts to automate and secure transactions.

### **Key Terminologies**

* **Lender**: A user who deposits assets into the Fathom Lending platform to earn interest.
* **Borrower**: A user who borrows assets from the Fathom Lending platform by providing collateral.
* **Collateral**: Assets pledged by borrowers to secure their loans and minimize the risk of default.
* **Interest Rate**: The percentage of interest paid by borrowers on their loans or earned by lenders on their deposits. Rates are determined dynamically based on supply and demand.
* **Liquidity Pool**: A collection of assets provided by lenders, available for borrowers to draw from.
* **Liquidation**: The process of selling a borrower's collateral when their loan falls below the required collateral ratio to protect the protocol from losses.

### **How Fathom Lending Works**

1. **Lending**: Users deposit their assets into the Fathom Lending protocol, adding liquidity to the platform. In return, they receive interest-bearing tokens representing their share of the liquidity pool.
2. **Borrowing**: Users can borrow assets from the liquidity pool by providing collateral. The amount they can borrow is determined by the collateral's value and the protocol's collateralization requirements.
3. **Interest Rates**: Interest rates for both lenders and borrowers are dynamically adjusted based on the utilization rate of the liquidity pool. Higher utilization leads to higher interest rates, incentivizing more deposits and balancing supply and demand.
4. **Collateral Management**: Borrowers must maintain a collateral ratio above a certain threshold to avoid liquidation. If the value of their collateral falls below this threshold, the protocol will automatically liquidate a portion of the collateral to repay the loan and maintain system stability.
5. **Liquidation**: When a borrower's collateral ratio drops below the required level, the protocol triggers a liquidation process. Liquidators can purchase the under-collateralized loans at a discount, incentivizing them to repay the loan and sell the collateral.


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