Borrowing in DeFi is the process where users obtain crypto assets or tokens from a protocol or platform by locking up collateral. The collateral serves as security for the loan and protects the lender or the platform from default risk. On Solana, borrowing is facilitated by DeFi platforms such as Solend, Mango Markets, or Marginfi, which automate borrowing through smart contracts. Users maintain control over their accounts, and loans are executed without intermediaries.
Borrowers can access stablecoins, SOL, or other digital assets while retaining exposure to their original investments. The borrowing terms—such as interest rates, liquidity conditions, and collateralization ratios—are set by the protocol and enforced algorithmically. If a borrower's collateral falls below a required threshold due to market fluctuations, their assets may be automatically liquidated to repay the borrowed amount and protect the platform’s solvency.
How It Works
Users deposit supported assets (e.g., SOL, USDC) as collateral into a lending protocol.
They can then borrow against the deposited collateral—typically a valid percentage known as the loan-to-value (LTV) ratio.
The borrowed assets can be used for trading, investment, yield generation, or other purposes.
Borrowers are charged an interest rate determined by market conditions, supply, and demand for each asset.
If the value of the collateral drops too low, the protocol may liquidate part or all of the collateral to repay the loan.
Borrowing in Solana’s Ecosystem
Solana offers fast, low-cost, and scalable borrowing experiences through platforms like Solend and Marginfi, which integrate directly with users’ wallets. This facilitates efficient leverage, arbitrage, and increased liquidity for users and traders. These protocols are integral to the Solana DeFi ecosystem, allowing users to participate in advanced trading strategies and liquidity provision.
Why Is Borrowing Important?
Enables users to unlock liquidity from their holdings without selling assets.
Powers leveraged and arbitrage trading strategies, amplifying potential returns (but also risk).
Supports broader ecosystem utility: users can participate in new opportunities and protocols by borrowing.
Promotes capital efficiency, allowing value to remain in the system for trading or staking activities.
🔑 Key points
Borrowing lets users access funds by depositing collateral in DeFi protocols.
Helps avoid selling long-term holdings and deferring potential tax events.
Utilizes smart contracts to ensure transparent and automated management.
Subject to interest rates, collateral requirements, and market risks.
Native to most major Solana DeFi protocols; features rapid, low-fee transactions.