Withdrawing Liquidity When Utilization Reaches 100%

When utilization in a lending pair reaches 100%, suppliers are not able to redeem their pfTKNs for the original asset through the standard withdrawal process. This is a standard scenario across all lending markets in DeFi. However, Peapods provides a novel solution which ensures that liquidity remains accessible thanks to pfTKN tradability on decentralized exchanges. This solution is outlined below.

T₀: A supplier deposits USDC into a lending pair. In return, they receive pfUSDC—a receipt token that tracks their share of the lending pool.

T₁: At a later time, the supplier wishes to redeem their pfUSDC for USDC. However, the lending pair is at 100% utilization, meaning all available USDC has been borrowed and is currently locked.

T₁ (Alternative): Instead of waiting for borrowers to repay, the supplier can immediately sell their pfUSDC on a decentralized exchange. Since pfUSDC remains liquid, this exit option allows the lender to retrieve USDC (or another asset) from a willing buyer in the open market.

This exit strategy reinforces the composability and reliability of the system. Even under maximum stress, lenders maintain an accessible off-ramp. This feature, which is not present in other lending market, keeps capital flowing and preserves confidence in the liquidity layer.

In LVF lending markets, suppliers can never get stuck, because the receipt token is liquid and tradable on DEXes through the very LP pool in which they are being lent to.