// GLOSSARY -- DEFI

What is Borrowing?

1 min read Updated

Borrowing in DeFi is taking a loan against deposited collateral through a smart contract — enabling leverage, tax-efficient liquidity access, and complex yield strategies without selling held assets.

WHY IT MATTERS

DeFi borrowing lets you access liquidity without selling your crypto. Deposit ETH as collateral, borrow USDC, and you've got cash while maintaining ETH exposure. If ETH goes up, you benefit from the appreciation while using the borrowed funds.

The key parameter is the loan-to-value (LTV) ratio — how much you can borrow relative to your collateral. Typical max LTV is 75-85%, meaning you can borrow 75-85% of your collateral's value before risking liquidation.

Borrowing is the engine of DeFi leverage: borrow stablecoins, buy more ETH, deposit as collateral, borrow more — a loop that amplifies both gains and losses.

FREQUENTLY ASKED QUESTIONS

What's the risk of DeFi borrowing?
Liquidation if collateral value drops below the threshold. Interest costs eating into returns. Smart contract risk in the lending protocol. Cascading liquidations during market crashes.
What can I borrow?
Any asset the lending protocol supports — typically major tokens (ETH, BTC, stablecoins) and DeFi blue chips. Each asset has different collateral factors and interest rates.
How is DeFi borrowing different from bank loans?
No credit checks, no paperwork, instant execution, overcollateralized (deposit more than you borrow), and global access. The tradeoff: no leniency on repayment and automatic liquidation.

FURTHER READING

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