How to borrow in DeFi | Get Started with Bitcoin.com (2024)

FAQs

How do you borrow against Bitcoin in DeFi? ›

Anyone can borrow crypto by depositing collateral into DeFi lending protocols. Borrowers must make sure their loans stay well collateralized or risk liquidation.

The DeFi lending protocols are also known as the DeFi lending platforms that allow the users to secure a DeFi loan. The loan can be in the form of any type of cryptocurrency on the platform. For securing a DeFi loan, the borrower must deposit a collateral type that is usually around the loan value of 150% to 200%.

A crypto loan is a loan issued by a crypto lending platform. When you take out a crypto loan, your cryptocurrency is used as collateral — just as your house or car would be used as collateral for a mortgage loan or auto loan. And like a traditional loan, crypto loans are paid off with interest over a set time.

Getting started

If you haven't already done so, the first thing you'll need to do is set up a crypto wallet compatible with DeFi apps, like Coinbase Wallet or Coinbase dapp wallet. Your wallet is your gateway into web3 and the ecosystem of dapps (decentralized applications) like DeFi apps.

Initiate withdrawal: Paste your deposit address into your DeFi wallet, preview the transaction, check fees, and confirm the withdrawal. Swap crypto for fiat: Once the funds land on your chosen platform, sell your crypto for your desired currency, withdraw to a bank account, or use the platform's spending tools.

Several crypto lending platforms, primarily within the DeFi ecosystem, offer loans without requiring collateral. Among these, the most prominent platforms include: Aave: As one of the oldest and largest DeFi lenders, they specialize in over-collateralized loans and also provide flash loans.

YouHodler provides their users with an option to get a loan using crypto or stablecoins assets as collateral. In return, the user instantly receives an agreed loan amount in USD, EUR, GBP, CHF, BTC, or Stablecoins.

DeFi takes the basic premise of Bitcoin — digital money — and expands on it, creating an entire digital alternative to Wall Street, but without all the associated costs (think office towers, trading floors, banker salaries).

How do I activate my DeFi wallet? ›

The advantages of doing so through DeFi lending platforms is that as a borrower you are not handing over custody of your collateral to an institution where you might face counterparty risk (instead you face a different protocol risk).

Borrow AUD using Bitcoin or Ethereum

You can borrow up to 33% of your crypto's value.

To borrow in DeFi, users must use cryptocurrency collateral in the form of other tokens that are worth more than the value of the loan itself — usually at least 1.5 to 3 times more. The smart contract regulating the loan takes custody of the collateral until the loan is repaid.

Wrapped Bitcoin (wBTC), for example, is an ERC-20 token on the Ethereum blockchain that is backed 1:1 by Bitcoin. This allows Bitcoin holders to use their BTC in Ethereum-based DeFi applications, enabling functionalities such as lending, borrowing, and trading within the DeFi ecosystem.