Let’s try to dissect a lending action.
First, Tom have 1 ETH of deposit (current price 4000U) on AAVE.
Current APY for ETH is 2%.
Second, Tom Lend 2000 USDT from AAVE.
Tom Can return that 2000 USDT anytime he want.
unless the price of ETH drop to 2500 (AAVE’s liquidation rate is 80%).
when ETH fall below 2500, liquidator could sell 1 ETH on the market and take 10% as price (250)
We can treat the lending action as serval action combined.
sell 1 ETH to USDT at price 2000U. (while the current price is 4000U) from Tom to AAVE.
a permanent call option for 1 ETH at 2000U. send to Tom .
a permanent insurance of ETH do not fall below 2500, 250 for compensate, issued by Tom to anyone make the liquidation.