Liquidity flow

Lotus connects tranches inside a market so that capital does not sit idle when demand is uneven across risk levels. This behavior is called cascading supply.

Unused liquidity in junior tranches can be used by borrowers in more senior tranches.

This has two practical effects:

• A junior lender’s capital can support borrowers at the same tranche or at more senior tranches.

• A borrower in a senior tranche can access more liquidity than that tranche’s direct deposits because senior borrowing can draw from junior supply.

Cascading supply works from junior to senior, not the other way around.

What you should expect to see

Because liquidity can move through the tranche stack:

• A tranche can show more borrowed than directly supplied.

• Lenders at junior tranches can back and earn interest from multiple tranches.

Why Lotus does this

Cascading supply helps Lotus avoid the common tradeoff in lending markets:

• If you split risk levels into separate pools, liquidity fragments and rates disconnect.

• If you force one risk setting for everyone, some users won’t participate.

By letting tranches share liquidity, Lotus keeps a single market deep while still letting you choose risk.

This page explains the behavior at a conceptual level. If you want exact definitions and worked examples, use the Protocol math (advanced) section.

Next: Read Utilization and rates to understand how Lotus measures demand and how the IRM uses utilization to set borrow rates.