Brothers, what are we most afraid of in DeFi (decentralized finance)? It's not earning less, but losing the principal.
Looking back a few years, how many times has a certain meme coin's plummet led to a chain liquidation of an entire lending protocol, making it impossible to withdraw even the stablecoin USDC that you deposited?
By 2026, the days of 'one rat droppings ruining a pot of porridge' will finally come to an end. The DeFi world is now crazily popularizing a new architecture - Modular Lending.
Today, let's put it in plain language and take a look at what this 'black technology' that can save your principal really is!
1 Why has traditional 'big pool' lending become unsafe?
In the past, lending giants (like early Aave and Compound) adopted the **'big fund pool'** model.
Common explanation: It's like eating **'Big Pot Rice' or 'Public Swimming Pool'**. Everyone throws their money (ETH, USDC, WBTC) into the same pool.
Want to borrow money? No problem, as long as you have collateral.
Fatal Bug: Suppose this pool has launched a highly volatile 'Meme Coin' as collateral to attract attention. Once the price of this Meme Coin drops to zero, or if the oracle (pricing system) has a bug, hackers can use a bunch of worthless Meme Coins to borrow all the valuable ETH and USDC in the pool.
The result is: although you deposited safe ETH, because dirty things mixed into the pool, your money also disappeared. This is what's known as **'risk contagion'**.
2 Modular Lending: From 'Big Dining Hall' to 'Independent Rooms'
Modular lending (like Morpho Blue) fundamentally changes the game. It operates on the principle of **'isolated markets'**.
Core logic: It no longer mixes everything together but locks each pair of lending relationships in an **'independent room'**.
An 'independent room' (market) is defined by four core parameters, none of which can be missing:
What to borrow? (e.g., USDC)
What to pledge? (e.g., PEPE)
What is the collateral rate (LTV)? (e.g., 50%, meaning you can only borrow 50 if you pledge 100)
Who will provide the quotes? (oracle)
What are the benefits of this?
Risk isolation: If the 'PEPE/USDC' room explodes (PEPE drops to zero), only those in this room lose money. The people in the adjacent 'ETH/USDC' room are still singing and eating hot pot, completely unaffected.
Efficiency takes off:
For stable assets like USDC pledging to borrow DAI, the collateral rate can be set to 98%, resulting in extremely high capital utilization.
For high-risk assets, set a lower collateral rate (e.g., 50%), be prepared to bear the losses.
In summary: debts have an owner, whoever's risk bears it, don't get involved!
3 Hardcore Deconstruction: How does this system operate?
(High-energy alert: There is code here, but don't worry, I will only explain the logic, I guarantee you can understand!)
We need to build such a system in three steps: create money, establish rules, and conduct tests.
First step: Create money (deploy token contract)
In the testing environment, we first need to have money. We issue two coins:
USDC (borrowed asset, real money)
PEPE (collateral asset, high-risk meme)
The code logic is simple: it's about printing money (Mint), giving our test account a huge sum.
Second step: Establish rules (core logic of the lending contract)
This is the most critical step. The smart contract ModularLending is our 'automatic teller machine'.
It mainly has three functional buttons:
createMarket (open a room)
Logic: Want to open a new market? Good, tell me what you want to borrow, what to pledge, and what the collateral rate is.
Black Technology: The system will generate a unique Market ID (ID number) based on these three parameters. In the future, anyone who wants to play in this room will recognize this ID.
supply (deposit money as the owner)
Logic: I have spare money and want to deposit it into the 'USDC/PEPE' room to earn interest.
Operation: Money goes from your wallet -> into the designated room of the contract.
borrow (pledge to borrow money)
First, pledge your PEPE to me.
Let's do the math: How much is your PEPE worth? Is it enough for the amount you want to borrow when multiplied by the collateral rate (LTV)?
Is there still money in the room for you to borrow?
Logic: I have PEPE, and I want to exchange it for some USDC to spend.
System check:
Result: Approved, USDC sent to you.
Third step: Conduct tests (simulation drills)
The code is written, and it must be simulated once to prevent crashing upon launch.
The testing script is as follows:
Scenario setup: The owner first issues coins, giving 1000 USDC to 'suppliers' and 1000 PEPE to 'borrowers'.
Opening: Create an isolated market for USDC/PEPE with a collateral rate set at 80%.
Deposit: Suppliers deposit 500 USDC.
Borrowing: The borrower pledges 100 PEPE, attempting to borrow 70 USDC.
Verification:
The system will automatically calculate: 100 PEPE * 80% = 80 USDC (the limit is sufficient, can borrow).
Assertion: Check the borrower's account, did they really get 70 USDC more? Check the contract ledger, is the accounting accurate?
Deployment: After testing passes, write a deploy.js script to send this logic to the blockchain network, and everyone can really start playing.
4 Future Outlook: Is the ultimate goal of DeFi 'Lego Blocks'?
With more Layer 2 networks emerging by 2026, assets are becoming more fragmented. Modular lending is not just for safety but also for freedom.
Permissionless Innovation: Previously, if you wanted to list a new coin on Aave, you had to beg and rely on community voting. Now? You create an 'isolated market' yourself, as long as someone dares to deposit money, you can borrow.
Everything can be collateralized: whether it's real-world assets (RWA), NFT fragments, or various points, as long as there is a price, it can be turned into liquidity through modular protocols.
In summary: Modular lending returns financial sovereignty to the market. It uses the bottom-line thinking of **'bad debts do not spread'** to give DeFi a bulletproof vest. In this new world, you can aggressively chase meme coins or conservatively only hold stablecoins, each to their own, living in peace.
This is what DeFi should look like.
After reading this, do you think the 'isolated market' model will become mainstream? Feel free to leave comments for discussion!👇
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Disclaimer: The content published in this article aims to share business models and disseminate knowledge, and is not intended to provide any specific advice. The author does not participate, invest, operate, advise, share, or privately analyze any project. We strongly recommend you conduct independent research and analysis before making any decisions, and make informed choices based on your personal situation.
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