Many users have wondered about a question when taking out low-interest loans on a certain leading lending protocol: there’s no such thing as a free lunch, so how is such a low borrowing rate sustained? Is it just a marketing gimmick or is there a deeper logic?

Actually, this is not a trick, but a carefully crafted economic cycle by the protocol designers. Let’s break it down.

**Over-collateralization is the first line of defense**
The protocol requires a collateralization ratio of over 140%. It sounds strict, but think the other way around—risk is significantly reduced, so the protocol dares to offer cheaper interest rates. Less risk means less loss, and naturally, loans can be offered at lower rates. This logic is straightforward.

**Revenue cycle is the key**
The protocol makes money every day: liquidation penalties, some loan fees—where do these revenues come from? Most of it is used for one purpose—buying back and burning the protocol’s governance tokens, or distributing to token holders who lock tokens for voting. In simple terms, the protocol subsidizes low interest rates through token appreciation, attracting more funds. As the overall ecosystem grows, the token value naturally rises. This creates a positive cycle.

**Community voting acts as a check and balance**
Governance token holders hold the power to set prices. Interestingly, the community tends to support competitive, low-interest policies—not because they don’t want to make money, but because they see the bigger picture. Growing the pie is more profitable than pinching pennies for quick gains.

**Final words**
Low interest rates are not just temporary promotions but a long-term operational philosophy of this system. The protocol is willing to sacrifice short-term interest income in exchange for rapid scaling and fundamental token support. To truly evaluate the investment value of such projects, one must understand this logic—otherwise, it’s easy to be fooled by superficial low rates and overlook the underlying economic truths.