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How to borrow Ethereum
You can borrow ETH through a number of exchanges and specialized lenders in the US, but make sure you understand the risks first.
Borrowing Ethereum (ETH) is a straightforward way to get access to ETH coins for a fraction of the cost of purchasing them outright. Several exchanges and specialized lenders in the US let you borrow ETH once you deposit another cryptocurrency or US dollars as collateral.
You can use your borrowed ETH for trading, staking, yield farming and a range of other decentralized finance (DeFi) activities. You will need to repay your loan plus any interest accrued, so be careful to factor this into your trading strategy and proceed with caution.
How to borrow ETH
- Compare lenders.The easiest way to borrow Ethereum is from a cryptocurrency exchange or lender. Choose one by comparing your options in the table below. If you plan to deposit US dollars, look for one that supports your preferred payment method. Use the Go to site button to create an account.
- Create an account.To open an account with your chosen platform, you'll need to verify your email address and identity. You may need to have some photo ID and your phone ready.
- Decide how much you want to borrow.Make sure you only borrow as much as you can afford to repay. There are several important areas you should factor into this decision alongside the risks of borrowing.
- How long you plan to hold the loan for.
- Whether the interest rate (APR) you need to pay is variable or fixed.
- What the frequency of repayment terms are (weekly or monthly).
- What the maximum loan to value (LTV) ratio is. The LTV determines how much you can borrow based on the value of the assets deposited as collateral.
- How long you can service the loan if the value of your collateral drops. For example, if you deposit Bitcoin and the value drops by 20% while your loan is active, this will affect the LTV of your loan.
- Deposit collateral.Once you have decided how much you want to borrow, you will need to deposit collateral to take out the loan. Each platform has different collateral requirements and the LTV will vary depending on the asset you deposit. There are additional risks you need to factor in if you plan to use cryptocurrency as collateral as the volatility of prices can affect your LTV. Consider using a stablecoin or fiat currency to reduce volatility.
- Monitor your balance.If your LTV dips beneath a certain threshold, your loan may get liquidated and the lender takes your collateral. Check back regularly to monitor your loan, top up your collateral if necessary and ensure that any repayments are made on time. If your lender offers them, enable alerts about the status of your loan and relevant market prices to help you monitor your loan responsibly.
- Repay the loan.Once you have made use of your borrowed ETH, you will need to return it to the lender and pay any additional interest accrued. This will vary between lenders but is as simple as transferring the total amount to the nominated address in your account.
Where to borrow Ethereum in the US
Risks of borrowing Ethereum
- LTV ratio. This determines how much you can borrow based on how much collateral you deposited. For instance, an LTV of 75% would let you borrow $750 worth of ETH against a deposit of $1,000. If the value of your collateral drops, you will be forced to repay part of your loan or add collateral to maintain the loan. Most lenders will let you know your LTV limit when you take out your loan and will also display an LTV threshold so you can add collateral to avoid automated liquidation.
- Collateral volatility. The ability to maintain your loan is based on the LTV. The LTV is in turn based on the value of your collateral. Any asset you deposit as collateral is subject to price volatility, even fiat currencies and stablecoins. As such, you need to monitor changes in the price of the asset you deposited. To maintain your loan, you may be required to top up your collateral to avoid hitting a liquidation threshold.
- Market risk. It's often said that you should never invest more than you can afford to lose and this is true with borrowing. If you are planning to borrow cryptocurrency to engage in trading or DeFi activities, be aware of the risks involved and what the total debt will be if your position is liquidated. Remember that interest will continue to accrue until you are able to return the borrowed amount in full.
- Insurance. Many cryptocurrency lenders do not have insurance, nor are they beholden to the same laws and standards of banks in the US.
- Currency exposure risk. When borrowing a cryptocurrency like ETH, you may be switching between several currencies before you close the loan. Each of the currencies has its own set of risks, such as price volatility, which need to be taken into account.
- Locked collateral. Once your loan is taken out, your collateral will be locked until you can repay the loan. If you think you may need access to these funds at any point during the term of the loan, you should reconsider whether taking out a loan is appropriate for you.
- Counterparty risk. When you deposit your funds as collateral, you are trusting a third party to take care of them. If anything should happen to the platform custodying them – such as bankruptcy – you risk losing all of your collateral.
Despite the low fees, the risks are substantial and sudden drops in the market can cause you to lose your collateral if your LTV goes above a certain threshold. Cryptocurrency loans should only be used as part of a comprehensive trading plan that includes responsible risk management.
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