Lenders

Diffuse Prime allows institutional and individual lenders to allocate capital into curated yield-generating vaults. Vaults are segmented by asset type and risk profile, giving lenders controlled exposure to DeFi strategies or borrower utilization flows.

Preparation and entering a vault

1. Select vaults by risk profile

Each vault’s risk profile reflects the yield strategies it contains; see the Vault section for more info.

1. Deposit liquidity

   • Lenders supply the vault’s primary asset (e.g., USDC, ETH, wBTC, USDT).

   • Before depositing, lenders can assess key vault's parameters:

     • Asset type

     • Risk profile

     • Borrow rate – cost for borrowers to use funds

     • Target APY – displayed as floating, not fixed

2. Choose lock duration & liquidity commitment

   • Vaults are open-ended, they have no fixed end date.

   • Lenders specify a maximum lock duration when depositing. For example, if a lender commits $10M with a 6-month lock:

     • This liquidity can only be matched to strategies of ≤6-month duration.

     • Capital may be reused across multiple short strategies (e.g., 4-month + 4-month).

   • Lenders can opt out of long-term commitments, ensuring their liquidity becomes available for withdrawal or reallocation after the current strategy ends.

3. Define behavior for unutilized capital

   • Idle capital (not yet matched to borrowers) might be deployed into external yield protocols (e.g., Aave, Morpho).

   • This generates floating APY while preserving availability for withdrawal.

   • If borrower demand appears, funds are withdrawn from external protocols and redirected into borrower strategies.

Withdrawal and claim

Withdrawals

• Unused capital can be withdrawn once the lender’s initial lock period ends.

• Utilized capital is withdrawable only after the active strategy or borrower position ends.

• Early withdrawals are limited to exceptional cases (e.g., via withdrawal windows or unmatched funds) and are subject to curator approval.

Yield & reward distribution

• Vault earnings are aggregated and distributed proportionally to all active lenders based on their share over time.

• Diffuse earns revenue only on utilized capital (used in borrowers strategy) applying a borrow spread fee (e.g., +1% on borrower APY); see more info on fees in the Protocol fees section.

• No fees are applied to idle capital default, though this may be parameterized in the future.

Optional enhancements

Vaults may also include Diffuse token rewards to boost lender APY. Configurable parameters are:

• Additional APY %

• Target total APY (including incentives)