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Using Ethereum as Collateral for Crypto Borrowing

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Summary

The document explains how an ETH holder can borrow against Ethereum without selling it, retaining price exposure while the asset is pledged as collateral. It outlines loan-to-value and loan-to-margin concepts, using a hypothetical collateral and loan example, and describes how falling collateral value can lead first to a margin call and then automatic liquidation. It gives stated platform thresholds of 80% LMR for a margin call and 40% LMR for liquidation, while noting that actual borrowing capacity depends on collateral haircuts and account terms.

It compares custodial borrowing with non-custodial DeFi lending, highlighting platform risk on the custodial side and smart contract or oracle risk for DeFi. It also notes that pledged ETH generally cannot be staked simultaneously. The material is an overview rather than a quantitative risk model: the example is illustrative, terms vary by jurisdiction and account, and it provides no forecast of ETH prices or loan outcomes. The core risk-management lesson is to borrow conservatively and leave room for collateral-price declines.

Key ideas

  • Borrowing against ETH can provide liquidity while the borrower retains exposure to its price.
  • A decline in collateral value can trigger a margin call and eventually automatic liquidation.
  • The document states margin-call and liquidation triggers at 80% and 40% LMR, respectively.
  • Custodial lending introduces platform risk, while DeFi lending adds smart-contract and oracle risks.
  • ETH pledged as collateral generally cannot also be used for staking during the loan.

Tags

CryptoRisk managementDeFiSpot markets

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.