# Supply

When you **supply assets to Udon Finance**, you're essentially depositing your digital holdings into our robust, decentralized ecosystem. Instead of a traditional bank, your assets are pooled and managed securely by **smart contracts**, fueling the protocol's liquidity.

Why participate as a supplier? The benefits are compelling:

* **Earn Passive Income:** By contributing tokens to Udon's liquidity pools, you automatically begin to **accrue interest**. This isn't a fixed rate; it's **dynamic**, adjusting in real-time based on market demand. As borrowing activity increases, so can your earnings, ensuring your crypto is constantly working for you.

> _Imagine your digital assets growing independently, generating returns while you focus on other priorities._

* **Unlock Collateral Potential:** Your supplied assets serve a dual purpose. Beyond earning interest, they can be utilized as **collateral to borrow other tokens** from the protocol. This powerful feature allows you to access necessary liquidity without having to sell your valuable crypto holdings.

#### How Earnings Are Calculated

The interest rate you earn as a supplier is not arbitrary. It's intelligently determined by key on-chain metrics, primarily:

* **Borrow Utilization Rate:** This crucial metric reflects the proportion of assets currently borrowed from a pool relative to the total supplied. A higher utilization rate typically translates to a **higher earning rate** for suppliers, as demand for borrowing increases.
* **Protocol Parameters & Oracles:** Fundamental parameters for both suppliers and borrowers, including interest rates and collateral requirements, are governed by Udon's smart contracts. These parameters are dynamically influenced by **real-time market data** sourced from Oracles (which will be detailed in a later section), ensuring fair and accurate adjustments.

Essentially, as the community supplies, borrows, repays, or withdraws assets, Udon's smart contracts instantly recalibrate interest rates to maintain equilibrium and fairness within the system. It's a responsive, self-regulating financial environment designed for optimal performance.
