How to borrow Ethereum

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.

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.

Bottom line

Borrowing Ethereum can be a useful tool for increasing your purchasing power, especially for use in trading, yield farming and DeFi. Getting started is easy and shouldn't take any more than an hour.

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.