Need cash but don’t want to sell your Bitcoin? There’s a way to get money without giving up a single coin.
Think of a pawn shop. You hand over your watch, walk out with cash, and when you repay the loan plus interest, you get the watch back. Crypto lending works the same way – except the pawn shop is a smart contract that never closes.
There are two sides. Lenders deposit crypto into a shared pool and earn interest. Borrowers lock up crypto as collateral and take a loan from that pool, usually in stablecoins. No credit check, no paperwork – your collateral does the trusting for you.
That’s why these loans are overcollateralized. Deposit a thousand dollars of Ethereum, and you might borrow six hundred. That cushion protects the lenders if prices fall.
So why use it? First, you keep your crypto and stay exposed if the price climbs. Second, you get spending money without selling – which in many countries means no taxable event. Third, as a lender, your idle coins finally earn something. Aave and Compound do all of this on-chain, twenty-four seven.
But here’s the risk. If your collateral drops too far, you get liquidated – the protocol sells your crypto to repay the loan, and it’s gone. Borrow well below your limit, and watch your health factor.
This is educational content, not financial advice – always do your own research.
