# Lending Protocols vs. PoS Security DeFi is an umbrella term that encompasses all decentralized finance. 2020-21 boom centered around the breakthrough mechanisms of liquidity pools and providing liquidity to many lending and swapping protocols in exchange for a share of transaction fees (liquidity mining). Liquidity pools do not create new coins but offer liquidity for transactions. Their rewards are related to market supply and demand for certain crypto assets and can be highly unpredictable. At the heights of the market, APYs (Annual Percentage Yields) of some liquidity pools reached hundreds and sometimes thousands of percent. According to [Chitra (2020)](https://arxiv.org/pdf/2001.00919.pdf), DeFi lending protocols cannibalize PoS networks’ security because their APY is higher than PoS staking rewards. In a rational market, PoS chains should struggle to find willing validators. ![Token supply locked in DeFi lending protocols vs. PoS protocols (Chitra, 2020). Source.](https://lh6.googleusercontent.com/2CL9DB_VI8YmQ-J4pY_v7YbL4_Km7i4gHNm2wTbyNHevo3y4sRLlkaNObrcqi5BUTammmqtx44VxshboHCNx6X0fonOm6kZ4JWJyryLxv40LLrnmzImD8qNL4xH3GhVlcSALBpU) Luckily, markets aren’t 100% rational or reward-oriented. Many validators run nodes altruistically to support blockchain networks. Some users also prefer more secure and passive rewards to the unpredictable and volatile DeFi smart contracts. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://whitepaper.trustednode.io/industry-backdrop/lending-protocols-vs.-pos-security.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.