# Introducing LendBook By [LendBook](https://paragraph.com/@lendbook) · 2024-01-30 --- Lending protocols are a central building block of blockchain applications. While they have amassed tens of billions of dollars in value, it's fair to say that the original design proposed by Compound and Aave has seen few improvements since then. Borrowers still rely on approximate metrics like the health factor to manage debt. They can only borrow a limited portion of their collateral's value and face early liquidations well before their collateral value falls below their loan amount, incurring significant liquidation costs. On the lender's side, risk management is entrusted to third-party experts, leaving a substantial part of governance in the hands of centralized entities. ### **Place limit orders, earn** LendBook rethinks lending and borrowing from the ground up by enabling users to lend and borrow assets in limit orders. Order books are long recognized to be an efficient design for trading assets in financial markets. They turn out to be also a great base layer to build a lending protocol. Lenders deposit quote assets in buy orders. Borrowers deposit collateral assets in sell orders and borrow quote assets. Borrowings are liquidated at the same price as the limit orders are filled. The alignment of the two events streamlines the settlement process for all parties and represents a fundamental shift in how lending and borrowing are approached. **A simple example:** Let’s illustrate with a USDC/ETH market and a current price of 2100. Alice wants to lend USDC. She first decides the limit price at which her USDC may be filled. Perhaps she plans to exchange her assets against ETH at 2000. Or she expects to buy the bottom at 1800, or prefers to keep her USDC and set a very conservative price of 1650. Bob wants to borrow USDC. He first deposits ETH in a sell order at e.g. 2300. He can then borrow USDC at the limit price of his choice which is also the price at which he will be liquidated. The closer the limit price to the current price, the higher his maximum loan-to-value (LTV). If he borrows from limit orders at 2000 his maximum LTV is 93%. If the price crosses 2000, Bob’s collateral is transferred to lenders at this price. If instead he borrows USDC from lenders at 1800, his maximum LTV will be 84% and his probability of liquidation will be lower. Conversely, if the price increases and Bob’s sell order is filled at 2300, the USDC he receives are used to pay back his debt first and only the difference is sent to him. ### **What differences does it make?** It makes a huge difference compared to existing lending protocols. First of all, there is no need to incentivize liquidation bots or to rely on a deeply liquid external AMM to sell the collateral back. There is no concept of bad debt that might need to be absorbed by a DAO treasury / insurance fund or socialized across lenders. There is also no need to pay expensive third-party risk agencies to oversee hundreds of risk parameters and a DAO to vote every week on technical proposals that most users do not understand. This is a big improvement over existing designs and opens a credible path to full decentralization. Second, the numerous borrowing limitations enforced by lending protocols to protect against the risk of bad debt can be lifted. This includes the removal of lending or borrowing caps, the reduction of liquidation costs to as low as 1%. Maximum LTV can be as high as 98% and leverage up to 50. Third, debt management of borrowers’ positions is now simple and transparent. Well specified stop price exists at which positions are closed at a loss (the limit price from which the position borrows) and for a profit (the limit price at which collateral is placed). Liquidations can be executed gradually across multiple limit prices, and similarly, take profit prices can be diversified by placing collateral at various limit prices. As for lenders, aside from earning an interest rate, they can easily rebalance their portfolio following price movements, implement buy-low/sell-high strategies and earn liquidation costs in case of conversion. * * * Lendbook is the first product built by Breaking Labs.  If you want to learn more about it, check out our [white paper](https://github.com/LendBook/Borrowable-limit-order-book/blob/main/lendbook_wp.pdf). Make sure to follow our [X](https://twitter.com/lend_book) account and join our [telegram](https://t.me/lend_book) group for updates! --- *Originally published on [LendBook](https://paragraph.com/@lendbook/introducing-lendbook-2)*