Definition
A money market traditionally concerns short-term funding instruments. In DeFi, the term commonly refers to protocols in which users supply assets and eligible borrowers draw liquidity, often against collateral. These on-chain arrangements do not necessarily have the same legal structure or maturity profile as traditional money-market products.
How It Works
A pool coordinates supplied funds and outstanding loans. Interest-rate rules may respond to utilization, and borrowing limits depend on asset-specific parameters. Suppliers may receive a receipt token or another accounting claim. Available withdrawals depend on the protocol and liquidity, not merely on a displayed account balance.
Key Considerations
A quoted supply rate can change as demand, incentives or governance parameters change. It should not be treated as a guaranteed bank deposit return. Borrower liquidations, oracle failures, contract vulnerabilities and asset depegs can affect outcomes. Different versions of the same protocol may also handle collateral and interest differently. Assess the actual market, asset, withdrawal mechanics and source of returns rather than assuming all money markets operate alike.