> For the complete documentation index, see [llms.txt](https://docs.arenas.fi/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.arenas.fi/how-it-works.md).

# How Arenas works

Arenas pools fund **financing markets**: credit programs where every loan is approved by a person and backed by an off-chain legal agreement, rather than secured by on-chain collateral and a price feed. This page follows your deposit from the moment you supply it until it comes back with yield.

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### The pieces, from your side

| Piece          | What it means for you                                                                                                              |
| -------------- | ---------------------------------------------------------------------------------------------------------------------------------- |
| **Pool**       | Where you deposit. You receive **pool shares** representing your claim on the pool's assets and accrued yield.                     |
| **Market**     | The real-world program your pool funds, such as `Brazil – Coffee – USDC`. It sets who may borrow, on what terms, and who approves. |
| **Approver**   | The party that vets each borrower's request before any of your capital can be drawn.                                               |
| **Obligation** | What a borrower owes the pool (principal, interest and other charges), tracked on-chain.                                           |
| **CDM**        | The Credit Delegation Module, which lets you route SomniaLend borrowing power into a pool for boosted yield.                       |

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### The life of a deposit

1. **You deposit** the market's asset token (e.g. USDC) and receive pool shares.
2. **Your capital is offered** to the market at the pool's rate, as an [intent](/intents-and-liquidity.md).
3. **A borrower is approved.** An approver signs off on a specific amount. No funds move at this point.
4. **The borrower draws down.** Capital is taken from the cheapest available offers first, and it may include yours.
5. **The borrower repays** principal and interest into the pool, and your pool shares grow in value.
6. **You withdraw** by requesting a redemption and executing it after the pool's delay.

See [**How Your Capital Is Lent**](/financing-request-lifecycle.md) for steps 3 to 5 in detail.

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### What protects you, and what doesn't

Every market runs on the same engine, which enforces:

* The shared **request → approve → draw down → repay** lifecycle. No borrower can take capital without an approver's sign-off.
* Fee and permission **limits** that a market cannot exceed.
* One standardized accounting of liquidity, disbursement and repayment.

What the protocol **cannot** do is liquidate collateral: there is none. Repayment depends on the borrower and the off-chain agreement. If a loan goes unpaid, recovery runs through that agreement and anything recovered is paid back to the pool. Your pool shares can lose value if that recovery falls short. See [Risks](/risks.md).

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### Boosted yield

You can do more than deposit idle capital. The [**CDM**](/credit-delegation.md) lets you keep collateral on **SomniaLend**, an external liquidity protocol on Somnia, delegate its borrowing power, and route the borrowed liquidity into an Arenas pool to earn the spread.