Lending Protocol Interdependency

Lending protocol interdependency describes the web of connections between different decentralized lending platforms that rely on each other for liquidity, collateral, or price information. Because these protocols are often built on top of each other, a failure in one can quickly propagate to others, creating a domino effect.

For example, a lending protocol might use a liquidity pool from another protocol as a source of yield, or it might rely on the same oracle network for price feeds. These dependencies are often not fully understood by users, leading to hidden risks.

As the ecosystem grows, these interdependencies are becoming more complex, making it harder to isolate risks and prevent contagion. Mapping these relationships is essential for understanding the true stability of the decentralized finance sector.