Borrowing Spread

The Borrowing Spread is the difference between the interest rate paid by borrowers and the interest rate earned by lenders in a decentralized lending protocol. This spread represents the revenue generated by the protocol or the cost of the intermediation service.

It compensates the protocol for the risks associated with facilitating loans, such as potential bad debt or operational costs. The spread can be fixed or variable, depending on the protocol's interest rate model.

A wider spread can lead to higher protocol revenue but may also discourage borrowing. Conversely, a tighter spread might attract more borrowers but could reduce the protocol's ability to cover its own risks.

Balancing the borrowing spread is a key strategic decision for protocol governance.