# Liquidity Risk Paddle’s Peer-to-Pool Lending is a decentralized, isolated-margin NFT lending market that allows users to deposit NFTs as collateral and borrow capital from designated liquidity pools. Liquidity providers, in turn, earn interest on the assets they supply. The liquidity of each market is defined by the availability of assets for core operations such as issuing loans backed by collateral and redeeming supplied funds with accrued interest. Maintaining sufficient liquidity is essential—without it, borrowing and withdrawal operations may become limited or delayed. To assess market health, Paddle monitors the utilization ratio of each asset pool, which reflects the proportion of total supplied assets that are currently borrowed. This ratio is a critical indicator of both capital efficiency and available liquidity. To balance these priorities, Paddle employs a dynamic interest rate model that adjusts borrowing costs based on utilization. This model incentivizes borrowing when pools are underutilized and encourages repayments or more supply when liquidity is tight—ensuring optimal capital flow and long-term sustainability. --- # 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://docs.paddlefi.com/risk-framework/liquidity-risk.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.