> For the complete documentation index, see [llms.txt](https://diffusefi.gitbook.io/docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://diffusefi.gitbook.io/docs/diffuse-prime/vaults/vault-roles/lenders.md).

# 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](/docs/diffuse-prime/vaults/vault-model.md) for more info.

2. **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
3. **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.
4. **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   * If borrower demand appears, funds are withdrawn from external protocols and redirected into borrower strategies.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* **Unused capital** can be withdrawn once the lender’s initial lock period ends.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](/docs/diffuse-prime/fees.md).
* **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)