> For the complete documentation index, see [llms.txt](https://resources.vaults.sentora.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://resources.vaults.sentora.com/direct-vaults/direct-vault-strategy.md).

# Direct Vault Strategy

## Lending

Lending is the primary strategy type associated with Direct Vaults. In a lending strategy, the vault supplies assets into a lending market where borrowers can draw liquidity against posted collateral. The yield paid to depositors comes primarily from borrower interest.

At a mechanical level, the strategy is simple:

1. The vault deposits the supported asset into a lending market,
2. Borrowers access that liquidity,
3. Borrowers pay interest,
4. That interest is passed through to suppliers, and therefore to vault depositors.

Lending is usually the cleanest way to generate base yield on highly liquid assets because it does not require directional views, active market timing, or complex position construction. It is often used as a lower complexity building block for institutional on-chain yield exposure.

#### Return characteristics

Lending returns are usually more stable than structured or leveraged strategies, but they are still dynamic. APY depends on:

* Utilization,
* Borrow demand,
* Interest-rate curve design,
* Any protocol incentive program that may be active.

#### Main risks of lending

Even though lending is comparatively simple, it is not risk-free. The main risk vectors are:

1. **Liquidity risk:** If utilization is elevated and most supplied assets are borrowed out, immediate withdrawal capacity can fall.
2. **Rate volatility:** Yield can compress if borrow demand falls or if utilization normalizes lower.
3. **Bad debt risk:** If borrower positions are not liquidated in time during sharp market movements, the protocol may accumulate bad debt, which can reduce the effective value of lender deposits.
4. **Smart contract and protocol risk:** Users are ultimately exposed to the correctness and security of both the vault contracts and the underlying lending venue.


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