Borrowing Against Crypto Without Getting Liquidated

Borrowing against an asset is simple to execute and simple to get wrong, and the error is almost always the same: treating the maximum loan as the intended loan. The interface shows what you can borrow. What you need is the distance between where you are and where the position gets sold.

The two ratios

Maximum loan-to-value is the share of your collateral's value you may borrow. Liquidation loan-to-value is the higher share at which the protocol sells your collateral to repay the loan. The gap between them is the entire buffer you have against the market.

Borrow the maximum and you begin at the edge of that gap. A modest fall in the collateral's price moves your ratio into liquidation territory, and the position is closed by a liquidator who is paid a bonus for doing it.

The arithmetic to actually run

1. Find both ratios for your specific collateral. They differ by asset, and a volatile asset gets a stricter one.
2. Decide the fall you want to survive – not the one you expect. Look at the asset's worst week in the last year.
3. Borrow the amount that leaves that much headroom, which will be far less than the maximum.
4. Write down the liquidation price as a number, not as a ratio. A ratio does not wake you up; a price does.
5. Set an alert well above it, because there is no stop loss and nothing will act for you.

Why the liquidation is worse than the fall

Liquidation does not return you to cash at the market price. A liquidator repays your debt and takes your collateral plus a bonus, so you lose the asset and the penalty at a price you did not choose, typically at the worst moment in the move.

What you are actually doing

If you borrow a stablecoin against an asset and buy more of that asset, you have taken leverage – with a liquidation price instead of a margin call, and nobody to ring you. That is a legitimate trade and it should be sized like one rather than described as unlocking liquidity.

If you borrow to fund something outside the market, the position is simpler: you are short the stablecoin and long your collateral, and your risk is the collateral falling while the debt stays constant.

• Keep a repayment buffer in the same wallet. Adding collateral during a crash requires having something to add.
• Understand that interest accrues against you – the ratio worsens over time even with the price flat.
• Check which oracle prices your collateral – on this chain that is usually Chainlink – since that feed decides when you are liquidated.
• Never borrow against an asset whose liquidity is thin. Check the pool depth on Dexscreener first, because the liquidation itself will move the price against you.