Feeder / Master Pool Model
One approach to decentralized lending / borrowing is to have a single liquidity pool which aggregates all assets from depositors in a single location which can then be accessed by borrowers. Whilst this creates deep liquidity and increases diversification, all depositors are treated equally (even though they may have different objectives and attitudes to risk).
Another approach is to have many liquidity pools, which aggregates assets from a small set of depositors, and then lends to a small set of borrowers (or single borrower). This reduces liquidity and diversification, but allows each set of depositors to be treated differently.
MoneySwitch has developed a hybrid approach which benefits from the advantages from each of these models based on a single Master Pool and a potentially unlimited number of Feeder Pools.
Lenders can choose to deposit one of the available Feeder Pools, or into the Master Pool. Feeder Pools have reduced risk and reward profiles relative to the Master Pool. The Scaling Factor of the Feeder Pool indicates the risk and reward level relative to the Master Pool.
When a lender deposits into a Feeder Pool their assets are aggregated with all other depositors into the Master Pool. This provides a single deep pool of liquidity for all borrowers to access.