How to Borrow Crypto on Aave or Compound?
Short answer: You deposit collateral (like ETH or USDC) into a smart contract, then borrow up to a certain percentage of that value—typically 60-80%. The process takes minutes, but liquidations can happen fast.
Borrowing crypto isn’t like getting a bank loan. There’s no credit check, no paperwork, and no human telling you “no.” You just need to supply an asset the protocol accepts as collateral. Once you do, you can pull out another token—like stablecoins or ETH—and use it however you want. The catch? If your collateral’s value drops too much, the protocol automatically sells it to cover the loan. That’s called liquidation, and it’s the single biggest risk you need to understand.
What Do I Need to Start Borrowing?
You need three things: a wallet (like MetaMask or Rabby), some crypto to deposit as collateral, and a little ETH or MATIC for gas fees. That’s it. No KYC, no minimum credit score, no questions about your job.
Most people start with a stablecoin like USDC or DAI as collateral because it doesn’t swing in price. But you can also deposit ETH, wBTC, or even liquid staking tokens like stETH. The key number here is the loan-to-value (LTV) ratio. On Aave, ETH usually has a max LTV of around 80%. That means if you deposit $1,000 worth of ETH, you can borrow up to $800 worth of another asset. On Compound, it’s similar—typically 75-80% for major assets.
One thing beginners miss: you don’t borrow the same asset you deposited. You deposit ETH to borrow USDC, or deposit USDC to borrow ETH. That’s how you get leverage or liquidity without selling your position.
How Do I Actually Borrow on Aave or Compound?
Let’s walk through it step by step. Say you want to borrow $1,000 USDC using ETH as collateral.
First, connect your wallet to the Aave or Compound app. Make sure you’re on the right network—Ethereum mainnet, Polygon, or Arbitrum. Each network has different gas costs and liquidity. For this example, let’s use Aave on Ethereum.
Second, go to the “Supply” tab. Pick ETH, enter the amount you want to deposit, and confirm the transaction in your wallet. That ETH is now locked in a smart contract, earning you a small APY while it sits there.
Third, switch to the “Borrow” tab. Choose USDC. The app will show your maximum borrowable amount—based on your deposited ETH’s value and the LTV ratio. Enter how much you want (say $1,000), check the interest rate (variable or stable), and confirm the transaction. The USDC lands in your wallet in seconds.
That’s it. You’re now paying interest on that borrowed USDC, and your ETH is still yours—though you can’t move it until you repay the loan.
What Interest Rates Should I Expect?
Rates on Aave and Compound change constantly. They’re determined by supply and demand for each asset in the protocol. When lots of people want to borrow DAI, the rate goes up. When fewer people borrow, the rate drops.
As of mid-2026, borrowing stablecoins like USDC or DAI on Aave Ethereum typically costs between 3% and 12% APY, depending on utilization. Borrowing ETH is usually cheaper—often 1% to 5% APY. You can choose between a variable rate (which changes with demand) or a stable rate (which stays fixed but is usually higher).
Here’s a concrete example: In July 2026, borrowing USDC on Aave Polygon might cost you 6.5% variable APY, while on Compound Arbitrum it could be 5.2%. The difference matters if you’re borrowing a lot. Always check the current rates on the app before you borrow—they update every block.
One more thing: you also earn interest on your deposited collateral. So if you deposit ETH earning 2% and borrow USDC costing 6%, your net cost is about 4%.
What Happens If My Collateral Drops in Value?
This is the scariest part for new borrowers. If the price of your deposited ETH falls, your health factor—a metric that shows how safe your loan is—starts dropping. On Aave, a health factor below 1 means you’re getting liquidated.
Let’s say you deposit $1,000 ETH and borrow $700 USDC. That’s a 70% LTV. If ETH drops 30% in a day (which it has done before), your collateral is now worth $700, and your loan is still $700. Your health factor hits 1. The protocol now allows liquidators to repay your loan in exchange for taking your ETH at a discount—usually 5-10%.
You lose your ETH, and you’re left with whatever USDC you borrowed. That’s a brutal outcome. To avoid it, you can either repay part of the loan or add more collateral before the liquidation happens. Some traders set price alerts or use bots to monitor their positions.
A good rule of thumb: never borrow more than 50% of your collateral’s value if you’re holding volatile assets. That gives you room for a 50% crash without getting liquidated.
Can I Borrow Against Stablecoins to Avoid Liquidation?
Yes, and this is one of the smartest moves for beginners. If you deposit USDC or DAI (which stay at roughly $1 each), your collateral value barely moves. You can borrow ETH or other assets with much lower liquidation risk.
Here’s the strategy: supply $1,000 USDC to Aave, then borrow $700 worth of ETH. Your collateral is stable, so even if ETH crashes 50%, your USDC is still worth $1,000. Your health factor stays healthy. The only risk is if USDC depegs—which happened in 2023 with USDC briefly dropping to $0.88. That’s rare, but it can happen.
This method is popular for leveraged long positions on ETH. You deposit stablecoins, borrow ETH, and hope ETH goes up. If it does, you profit. If it drops, you’re not getting liquidated because your collateral is stable. Just remember you’re still paying interest on the borrowed ETH.
For more advanced strategies, check out Everything You Need To Know About Defi Defi Staking Rewards Tax Treatment for a full breakdown of how to optimize your borrowing.
What Are the Hidden Costs and Risks?
Most people only look at the interest rate. But there are other costs that eat into your position.
First, gas fees. On Ethereum mainnet, a single transaction to supply, borrow, or repay can cost $5-$50 depending on network congestion. If you’re borrowing small amounts, these fees can wipe out any profit. That’s why many people borrow on Polygon, Arbitrum, or Optimism, where fees are often under $0.10.
Second, liquidation penalties. If you get liquidated, you lose a chunk of your collateral—typically 5-10% on Aave, and up to 8% on Compound. That’s a massive hit. Even if the price recovers after your liquidation, you’re out of the game.
Third, smart contract risk. Aave and Compound have been audited dozens of times and hold billions in TVL, but no code is perfect. A bug could drain funds. That’s why you should never borrow more than you can afford to lose.
And fourth, interest rate spikes. If a token becomes extremely popular to borrow, rates can shoot from 5% to 50% APY in hours. You might wake up to a much higher cost than expected.
What Most People Get Wrong
Three big misconceptions I see all the time:
Mistake #1: “I can borrow without repaying.” No. Interest accrues every second. If you never repay, the interest compounds and eventually pushes your health factor below 1. You’ll get liquidated. You have to actively manage your position.
Mistake #2: “Liquidation only happens if the market crashes.” Wrong. Liquidation can also happen if your borrowed asset’s price spikes—if you borrow ETH and ETH goes up 200%, your LTV increases because your debt is worth more in USD terms. Both directions can hurt you.
Mistake #3: “All assets have the same LTV.” They don’t. On Aave, stablecoins have LTVs up to 80%, while more volatile tokens like UNI or LINK might have LTVs of 50-60%. Always check the asset-specific LTV before depositing.
For a deeper dive on avoiding common pitfalls, read .
Our Take
At Aivora, we believe borrowing on Aave or Compound is a powerful tool—but only if you treat it like a serious financial instrument, not free money. The technology is elegant: trustless, permissionless, and global. But the risks are real and unforgiving.
Start small. Borrow against stablecoins first. Keep your LTV under 50%. Set price alerts. And never borrow money you’d be devastated to lose. The beauty of DeFi borrowing is that it puts you in control. The danger is that you have no one to blame but yourself if something goes wrong.
Is borrowing crypto worth the risk? For disciplined traders who understand liquidation mechanics, absolutely. For everyone else? Stick to spot trading and learn the ropes first.