Borrowing in DeFi is the process of obtaining cryptoassets from a lending protocol or shared liquidity market under rules enforced by smart contracts. In most systems, the borrower first deposits collateral and then receives the ability to borrow another asset.

For example, a user can deposit a cryptoasset and borrow a stablecoin without selling the original asset. The collateral remains locked in the protocol while the loan is active and the borrower remains responsible for the debt and accrued interest.

Borrowing capacity is determined by the value of the collateral and protocol risk parameters. A key metric is the collateralization ratio. A higher required ratio means that the borrower can generally borrow a smaller amount relative to the collateral value.

The value of both collateral and debt can change. A price oracle provides market prices used to evaluate the position. If collateral falls in value, the position can approach the liquidation threshold.

Borrowing can be used to obtain liquidity without selling an asset, construct trading positions, hedge exposure, or participate in other DeFi strategies. However, borrowing creates an obligation, so the expected return of the strategy must be evaluated together with interest and liquidation risk.

Unlike a traditional bank loan, DeFi borrowing often does not depend on credit history or personal identification. Instead, the system relies primarily on collateral and automated rules. This increases accessibility while transferring substantial responsibility to the user.