Jupiter, a prominent player in Solana's lending sector, has launched its updated Lend version 2 (v2) product, enabling users to earn interest on deposits while also benefiting from trading liquidity. This innovative approach means a single dollar can now work for users in two ways: as a loan generating interest and as a contributor to swap fees.

Enhanced Features for Increased Returns

With the introduction of Lend v2 on Monday, Jupiter allows both deposits and borrowed assets to serve as trading liquidity. This dual functionality offers users the potential for earning lending interest alongside a share of swap fees from the same capital.

  • Jupiter's Lend v2 incorporates optional features like Smart Collateral and Smart Debt. These features automatically connect assets into correlated liquidity pools, enhancing yield for depositors and mitigating borrowing costs when traders utilize those pools for swaps.
  • In correlated pools, borrowers are safeguarded against stablecoin depegging, although collateral providers may face losses on either asset. Jupiter aims to minimize this risk by limiting its design to stablecoin pairs and SOL against its staked versions.

According to data from DefiLlama, Jupiter Lend currently manages approximately $1.9 billion in deposits and has generated $1.6 million in fees over the last month, equating to about 1% annual returns on the capital before protocol splits.

Active loans are reported at $822.7 million, fluctuating between $600 million and $900 million since September, based on Token Terminal data. Both deposits and loans have seen a decline recently.

The new Lend version introduces two optional features. Smart Collateral allows deposits in USDC, USDT, SOL, or JupSOL to be paired into a correlated liquidity pool automatically, enabling assets to earn yield on loans, trading fees, and staking rewards. Similarly, Smart Debt applies to borrowed assets, allowing the fees generated to offset loan costs. Users may opt for standard lending without using these features.

The additional yield is contingent on traders actually swapping through these liquidity pools. Jupiter operates Solana's largest swap router, which connects wallets and applications to find optimal pricing across platforms, while also maintaining pools that require sufficient swap flow.

Jupiter reassured CoinDesk that its router does not prioritize its own vaults, directing swaps to the best available prices.

However, the risk associated with asset pairing is not evenly distributed. Jupiter explained that margin is assessed using primary market oracles, meaning temporary price changes on exchanges will not lead to immediate liquidations, which only occur when the loan-to-value ratio exceeds set thresholds. In the case of a genuine stablecoin depeg, borrowers are protected; for example, a borrower with $100 divided between USDC and USDT would see the pool adjust to maintain value, while the borrower would still owe $100. Conversely, collateral providers would absorb losses if either asset fails to maintain its peg.

This design is specifically tailored to stablecoin pairs and SOL against its staked variants, avoiding volatile assets to limit risk exposure.

Kash Dhanda, Jupiter's chief operating officer, noted, "There’s been a wall between the two primary ways people earn APY on-chain, lending and LPing," highlighting the integration of these functions. He added that this structure enables Jupiter to offer more attractive deposit rates and lower borrowing costs, enhancing terms as vaults draw increased trading activity. "It is not just about servicing existing loans, but about providing efficiency to expand the entire market," Dhanda stated.

Jupiter anticipates a combination of new loans and the migration of existing positions but has not specified a target or limit. The protocol, which has not seen loan growth in a year, now offers a product that provides higher returns, and the upcoming 30 days of active loans will reveal if yield was a significant factor in previous stagnation.