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The future of onchain lending is already programmed. If the first wave of DeFi lending markets brought simple dual-asset functionality – deposit ETH and borrow stables or vice-versa – the next wave is significantly raising the bar. A new era of DeFi protocols is making use of the programmability that is inherent to smart contracts to enshrine new powers in the assets being used for lending purposes.This is being done partly in response to the proliferation of new token types that now abound in DeFi; the days when ETH, governance tokens, and stablecoins were the only assets in town are long gone. As more exotic assets enter the fray, from RWAs to Pendle PTs, the scope for what can be done with tokens that are locked into lending protocols has expanded.But it’s not just the emergence of new token types that’s compelled lending platforms to up their game: increased competition, from centralized and decentralized sources, has provided an incentive to engineer more sophisticated solutions. Everyone’s seeking sustainable onchain yield. And in programming advanced capabilities into lending assets that serve as collateral, DeFi users can have their cake and eat it, enjoying the benefits from borrowing coupled with the additional yield their collateral brings. Here’s how it works. Programmable Primitives The concept of programmable primitives entails coding specific functions into onchain assets. This means that they can perform the base function their creator intended – such as maintaining a certain price peg or accruing yield – while being used for other DeFi purposes such as trading or liquidity provision. In the concept of lending markets, this has a number of benefits. Programmable lending markets add additional powers to the basic onchain lending process. For one thing, they enable the long tail of crypto assets that are unlendable in shared pools to be included in dedicated markets. Lending platforms that incorporate these assets can offer greater yield opportunities for users without materially increasing surface risk. They also support the use of restaking assets for lending purposes, aligning with a broader DeFi narrative of unlocking greater capital efficiency. One of the drawbacks to DeFi lending in its current form is that the amount of capital that must be deposited as collateral is bound to exceed the borrowable amount by around 2:1. Through programming specific features into collateralized tokens, DeFi developers allow users to make smarter use of their crypto. For example, this means it’s possible to stake a Layer 1 asset such as ETH, mint a liquid staking token such as stETH, and then use that to borrow against. This is already a favored choice by institutions and professional trading firms especially, who use stETH in centralized and decentralized lending platforms. The staking rewards stETH grants can increase collateral value over time, providing a solid foundation for exploring other DeFi opportunities with borrowed assets. But this is merely scratching the surface of what can be done with programmable assets in lending markets. As a closer look at one platform in particular – Silo Finance and its use of “hooks” – shows, the future of onchain lending is interconnected. Programmable Lending Markets Come of Age Silo began life as a non-custodial DeFi marketplace offering isolated lending pools, which were the foundation of its V1 protocol. It’s a model that’s proven very successful, accruing hundreds of millions of dollars in TVL and facilitating decentralized lending and borrowing without incident. But V2 ups the stakes significantly by introducing programmable lending markets, a solution designed to address long-standing shortcomings to onchain lending. Essentially, V2 allows for customizable lending solutions, powered by modular “hooks” that embed custom logic into individual markets. This enhances yield and adds utility to the underlying assets while maintaining Silo’s signature risk isolation. As Silo explains in a blog post outlining its vision for V2, “Hooks are smart contracts that extend the functionality of the lending markets. For example, a lending market can utilize a hook contract to deploy idle liquidity externally to optimize yield for depositors.” The backbone of V2, hooks are modular extensions that allow deployers to program functionality that extends to other DeFi applications for yield optimization, enabling fixed-term lending, or creating permissioned markets for regulated assets. This flexibility stems from V2’s use of the ERC-4626 standard, allowing integration with third-party protocols and supporting interoperability across EVM chains. Built for DeFi Builders While the possibilities hooks offer are virtually unlimited, the onus is on developers to dream up ways to use this functionality. Silo can suggest use cases, but it’s leaving it to third-party developers to leverage this power in the manner that they deem best. To accelerate this process, SiloDAO is launching an incentivized contribution program that will support developers seeking to build a library of audited hooks. That way, DeFi builders will be able to tap into a bank of secure and feature-rich hooks that can be used in any number of ingenious ways. It remains to be seen what ideas devs come up with, but it’s clear that programmable markets are ideal for optimizing yield through capital deployment to DEXs or other dapps. This has the potential to reduce borrowing costs via collateral rehypothecation. The introduction of programmable lending markets has far-reaching implications for DeFi lending at large, since the industry’s composability, built on open source code, means that innovation in one sphere tends to filter through to other domains. This innovation, as embodied by Silo V2, also signals growth for the $SILO governance token, which holders use to vote on parameters like liquidity deployment and treasury management. With nearly $300,000 in revenue distributed to $SILO holders to date, the token plays a key role in shaping programmable markets. For developers, understanding Silo’s programmable lending markets unlocks opportunities to build innovative, risk-isolated lending solutions, using hooks for everything from custom yield strategies to RWA markets. We’re still early in the life cycle of programmable lending. But what’s clear, even at this stage, is that it’s going to redefine the face of onchain lending, allowing assets of all kinds to be used for lending, borrowing, and other DeFi primitives – simultaneously and securely.