Defi-Borrowing with collateral. Use case?

In order to borrow, you have to open a collateral debt position in underlying protocol.

I have a question :

Since that you already have the funds, why would you still want to borrow by locking up an even more amount of money into the protocol [ Assuming the collateralization ratio is 150%]. It makes more sense in the future if it is an under-collateralized position though.

If the entity wanted to borrow the funds to go long / short an instrument, why not just use the collateral he / she put up instead ?

In the example of offering a house as a collateral in order to borrow from the bank, at least, the entity will have a place to live in. Same goes for buying a car and putting the car as a collateral … etc.

Once I sell my bitoin it’s gone.

If I borrow against it I just have to pay back that loan, which I may be able to do with the value the bitcoin has gained, effectively getting free money.

Say I locked in one bitcoin at $6k and generated 3000 DAI - instead of selling half a bitcoin.

Now bitcoin is at $12k.

When I pay off the contract, even if I have to use bitcoin to do it, I still have 3/4 of a bitcoin instead of the half I would otherwise have, so I am ahead $3000 from where I would be had I sold the bitcoin instead of borrowing against it.

Minus network and contract fees.

It’s almost always better to borrow against a strong asset.


In your example, it would only make sense to borrow if bitcoin goes up in value, if not, then you are losing money in interest, fees etc.

Even if bitcoin goes up, I don’t understand how this is free money? It’s a loan you have to pay it back + interests. Where is the free money?

I can go to the bank borrow money with 0 collateral just on a promise that I will pay them back because I have a good credit and a good job. To me that makes way more sense that borrowing with more collateral than what I’m borrowing.

There is no free money in there.

If it doesn’t make sense to you to set up a vault, pay fees, and go through that process to borrow against your bitcoin rather than sell it then don’t do it.

This is for people who can’t go to a bank and get a loan, or who don’t have collateral other than crypto…

or who recognize the damage banks have done to the world and prefer to navigate tech and reward innovators rather than give banks more profit to gatekeep.

This is, after all, a defi course.


There is zero interest, depending on the asset.

It’s not “This only makes sense if bitcoin goes up”.
It’s “This only makes sense if you want to hold onto your bitcoin.”

With an overcollateralized loan on Oasis I was able to go in a few times and borrow against it when I needed cash for trash.

As far as I know ZERO banks will give me money any time any where by me simply requesting to get more from a loan.

It was a much better situation than I’m in atm, where I’m spending nibs of HODL to help people with crazy emergencies when BTC is sideways down. I didn’t think my cashflow needs through when I moved funds into pools. It’s not just my needs I have to cover sometimes.


I was having the exact same question.
And yes, if I borrow against BTC for example, I can maintain the value of my collateral if BTC holds its price or pushes it up.

But wouldn’t that mean if I put 1 BTC as collateral @ 10k and the BTC price drops by 50% that I would get liquidated?

Maybe I got a thinking error here, but it seems not safe to borrow against everything but stablecoins :thinking:

That’s the fun of defi.


There’s no reason to pay the fees and lock up a larger number of stablecoins to generate stable coins.

It’s safer, but expensive.


Hey mate,

Following your example of the 1 BTC as collateral, would you get liquidated if the price drops by 50%?

Can’t wrap my head around it, hoping you could please expand on a loan being undercollateralized or liquidated? :upside_down_face: