# How Lending Works

> You deposit USDC into the Senior or Junior tranche and receive share tokens for that tranche. As the pool earns, each share is worth more USDC.

Canonical: https://spout.finance/docs/how-lending-works/

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You deposit USDC into the Senior or Junior tranche and receive share tokens for that tranche. As the pool earns, each share is worth more USDC. Your yield comes from income that stocks produce and that has traditionally stayed with institutions: option premium on the collateral, plus Treasury bill yield on cash that is not lent. You never hold stocks, and you never need collateral or identity verification.

**Senior tranche target APY**: ~9%

**Junior tranche target APY**: ~32%

**Withdrawal fee, no deposit fee**: 0.20%

APY means annual percentage yield. The targets come from the lending model on the Tranche Math page and are not guaranteed.

## What your USDC does

All lender USDC sits in one lending pool, shared by both tranches:

- **Part is lent to borrowers** at 0%. Those loans are backed by collateral worth at least twice the loan when they open.
- **The rest stays as cash** and earns Treasury bill yield. Borrowing pauses once 85% of the pool is lent, so new loans never take available cash below 15% of the pool.

## What you earn

**Option premium**: Covered calls are written on every collateral pool. Premium after the protocol fee goes to the lending pool.

**Treasury bill yield**: Cash that is not lent out earns it. Spout takes no fee on it.

The two add up to the pool's yield, which is then split between Senior and Junior by the tranche rules.

## Step by step

- Open Earn and pick Senior or Junior. Compare them side by side if you are unsure.
- Enter an amount of USDC and confirm in your wallet.

- You receive shares of that tranche. Your balance grows as yield accrues.
- To leave, withdraw some or all of your shares. Senior and Junior have different exit rules, and a 0.20% withdrawal fee applies to the amount you withdraw.

## Pauses you might see

Deposits and withdrawals pause briefly while a liquidation settles, so no lender can exit at a price that ignores the loss. Senior deposits also pause when Junior is below its minimum share of the pool while the pool's yield rate is above Senior's 7%. See Circuit Breakers and Pauses.