Jupiter’s New Solana Lending Product Lets Borrowed Assets Earn Trading Fees

Solana-based DeFi platform Jupiter has launched an upgrade to its lending product that allows borrowed assets to be deployed as decentralized exchange liquidity, potentially generating trading fees that can offset the cost of borrowing.

Called Lend v2, the upgrade also lets deposited assets earn both lending yield and DEX trading fees from the same position. Jupiter says the changes are designed to combine two previously separate ways of earning returns in decentralized finance: lending and liquidity provision. Jupiter describes Lend v2 as the first Solana lending protocol to let borrowed assets earn trading fees.

How Lend v2 Works

Lend v2 introduces two optional features, Smart Collateral and Smart Debt.

With Smart Collateral, users can deposit a single supported asset, such as USDC, USDT, SOL or JupSOL. Jupiter can then put the asset to work as part of a correlated liquidity pool.

Eligible positions can earn lending yield, DEX trading fees and, where applicable, native staking rewards, according to Jupiter.

Smart Debt applies the same concept to borrowed assets — and is the more unusual feature of the upgrade.

Rather than leaving borrowed funds outside the liquidity system, users who opt in can have those assets deployed as DEX liquidity. When traders use the pools, the resulting fees can potentially offset some or all of the interest charged on the debt.

The underlying borrowing process remains unchanged, Jupiter said. Users can still borrow and repay assets as before, while those who do not want DEX exposure can continue using the platform’s conventional lending features. 

Meanwhile, the third major addition, Lifetime PnL, gives users a historical view of a position’s performance, combining lending yield, borrowing costs and trading fees over the position’s lifetime.

“There’s been a wall between the two primary ways people earn APY onchain — lending and LPing,” said Jupiter COO Kash Dhanda. “Lend v2 brings down that wall by letting users opt in to letting their liquidity work as both lending and AMM liquidity at the same time.”

Both Smart Collateral and Smart Debt features are optional, and the company says users who prefer conventional lending can continue to supply and borrow without any exposure to DEX liquidity or its associated risks.

The Capital-Efficiency Play

In conventional DeFi lending, deposited assets generate lending income while borrowed assets represent a cost. Liquidity provision offers another potential source of income through trading fees, but typically requires users to take a separate position.

By combining lending with liquidity provision, Jupiter is giving Solana users a new way to earn from capital that would normally sit in a lending position. 

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