How to Borrow and Lend Crypto and NFTs in DeFi (2026 Guide)

DeFi lending is a set of smart contracts that match people who want to earn interest on idle crypto with people who want a loan. There is no loan officer, credit check or fixed paperwork. The rules are in code, and your collateral is the only guarantee the lender has.

There are three main designs, and knowing which one you are using shapes everything else.

• Pooled money markets. Lenders deposit into a shared pool for each asset. Borrowers draw from the pool after posting collateral. Interest rates move automatically with utilization, meaning the share of the pool currently borrowed. Aave, Compound, SparkLend, Venus and Dolomite follow this broad pattern, with differences in assets, risk settings and features.
• Collateralized debt positions (CDPs). You lock collateral and mint a stablecoin against it. Liquity V2 lets you mint BOLD against ETH or liquid staking tokens and set your own interest rate. Frankencoin mints a Swiss franc stablecoin against approved collateral. You are borrowing newly created tokens rather than other users' deposits.
• Peer-to-peer or peer-to-pool loans. Common for NFTs. A borrower offers an asset as collateral, a lender offers terms, and the loan runs for a fixed period.

Almost all DeFi loans are overcollateralized: you must lock more value than you borrow. That protects lenders, but it means borrowing is mainly useful for getting liquidity without selling, taking leverage, or shorting, not for unsecured credit.

Lenders earn from the interest borrowers pay, and in some protocols from incentive tokens. Borrowers pay variable or fixed interest and risk liquidation if collateral value falls too far.

Preparation prevents most beginner losses. Work through this list before you deposit anything.

1. A self-custody wallet. Use a reputable wallet and store the recovery phrase offline. Never type it into a website or share it with anyone, including people claiming to be support staff.
2. The right network. Many lending protocols run on Ethereum and several layer-2 networks, and the same protocol can have separate markets on each. Check which network your funds are on, because transfers between networks cost fees and take time.
3. Gas funds. Every approval, deposit and repayment costs a network fee paid in that chain's native token. Keep a spare balance so you can repay or add collateral in an emergency.
4. Collateral and a plan. Decide what you will deposit, what you want to borrow, and why. If the answer is vague, hold off.
5. The correct site. Reach protocols through bookmarks or a link from the site's verified social channels. Fake front ends that drain wallets are common, and search ads are a known channel for them.
6. A small test. Start with a small deposit and withdrawal to confirm you are on the right contract and network.

Also consider tax and legal status. In many countries, borrowing, repaying, swapping and earning interest can create reportable events. Rules vary and change, so check your local requirements or ask a qualified adviser. Keep a record of transaction hashes and dates.

Supplying is the simpler side. The flow is similar across pooled markets.

1. Connect your wallet to the protocol's app and select the correct network and market.
2. Pick an asset to supply. Stablecoins are popular for lenders who do not want price swings, but they carry issuer and depeg risk. Volatile assets such as ETH earn interest too, though their dollar value will move.
3. Check the rate and limits. The displayed supply rate is variable and reflects current borrowing demand. Some markets have supply caps that stop new deposits.
4. Approve the token. The first deposit of an asset requires an approval transaction that lets the protocol contract move that token. Where the interface allows it, approve only the amount you need, not an unlimited amount.
5. Deposit. You usually receive a receipt token, or a balance that grows over time, representing your share of the pool plus accrued interest.
6. Decide on collateral use. On many protocols, supplied assets can be switched on as collateral for borrowing. If you only want to earn interest, leave collateral off for that asset.
7. Withdraw when needed. You can withdraw as long as the pool has free liquidity. If most of the asset is borrowed, withdrawals can be delayed until borrowers repay or new deposits arrive.

Compound V3 has a different design: you supply the single base asset of a market to earn yield, and other assets act only as collateral for borrowers. Curated vault products, such as those managed by risk firms like Gauntlet, spread deposits across markets under a manager's rules, which adds a layer of manager risk.

Borrowing adds the risk of liquidation, so go slowly and borrow less than the maximum.

1. Deposit collateral and make sure it is enabled as collateral. Not every asset can be used, and each has its own limits.
2. Read the risk parameters. Each collateral asset has a loan-to-value (LTV) ratio, which is the maximum you can borrow against it, and a higher liquidation threshold, at which your position becomes eligible for liquidation. It also has a liquidation penalty.
3. Choose what to borrow. Stablecoins are the usual choice because the debt does not rise when the market rallies. Borrowing a volatile asset means your debt moves with its price.
4. Set a conservative amount. Look at the health factor or equivalent indicator the app shows before you confirm. A cushion that survives a large drop in collateral price is more useful than squeezing out the last dollar.
5. Confirm the transaction and check the interest type. Some markets offer only variable rates. Liquity V2 lets you choose your own rate, with a trade-off: lower rates can leave your position more exposed to redemption.
6. Track the position. Interest accrues every block, so debt grows even if prices stay flat.
7. Repay and withdraw. Repay principal plus interest, then withdraw collateral. Many apps let you repay with collateral to unwind in one step.

Before borrowing, work out where you will get funds to repay. If the plan relies on selling the collateral itself, you have effectively built a leveraged position.

Three numbers decide whether you keep your collateral: LTV, liquidation threshold and health factor.

• LTV is debt divided by collateral value.
• Liquidation threshold is the LTV at which a position can be liquidated.
• Health factor is, in Aave-style markets, collateral value times the liquidation threshold, divided by debt. Above 1 is safe from liquidation, and below 1 is liquidatable. Other protocols show a similar measure under different names, such as a collateral ratio.

Hypothetical example, not live data: you deposit assets worth 10,000 dollars with a liquidation threshold of 80 percent and borrow 5,000 dollars. Health factor is 10,000 × 0.8 ÷ 5,000 = 1.6. If the collateral falls 30 percent to 7,000, the health factor is 7,000 × 0.8 ÷ 5,000 = 1.12. A further drop of roughly 11 percent brings it to 1.

When it falls below 1, liquidators repay part of the debt and receive collateral at a discount. You lose that discount, which is the liquidation penalty, and your position shrinks. Fast markets, network congestion and oracle delays can make liquidations happen before you can react.

Ways to lower the risk:

• Borrow stablecoins against assets you believe in, with a wide buffer.
• Avoid borrowing a volatile asset against a different volatile asset unless you understand the correlation.
• Add collateral or repay debt when the health factor drops, not after.
• Consider automation tools such as DeFi Saver, which can adjust or close positions when set thresholds are crossed. Automation has its own costs, including fees and smart contract risk, and can fail in extreme congestion.

No single protocol suits everyone. Match the design to your goal and check live data on each app and on independent dashboards.

Protocol	Design	Notes for readers
Aave V3	Pooled market, multiple chains	Wide asset selection, variable-rate borrowing and risk settings per asset
Aave V4	Modular hub-and-spoke	Newer architecture. Check its current deployment status and audits before use
Compound V3	One borrowable base asset per market	Simpler risk model, but collateral cannot be lent out for yield
SparkLend	Stablecoin-focused market, governance-set rates	Rates set through governance rather than a pure utilization curve
Euler V2	Modular lending vaults	Markets can be created and curated by different parties, so risk differs per vault
Venus Core Pool	Multi-chain money market	Strong presence on BNB Chain ecosystems
Dolomite	Money market with leveraged strategies	Very large asset list, which can mean thinner liquidity on long-tail assets
Liquity V2	CDP, user-set interest rate	Mints BOLD against ETH and some liquid staking tokens
Frankencoin	CDP, oracle-free design	Mints a Swiss franc stablecoin

What to check before choosing:

• Audits and track record. Longer operating history under real stress is useful evidence, though not a guarantee.
• Liquidity. Can you withdraw or repay at size?
• Oracle design. Price feeds drive liquidations, so know what each market relies on.
• Governance and upgrade powers. Who can change parameters or pause markets?
• Asset risk. Markets listing thinly traded tokens as collateral are riskier for lenders.

On modular platforms, the vault or market curator matters as much as the protocol itself, so read who sets the parameters.

NFT lending lets you borrow, usually a stablecoin or ETH-type token, against an NFT without selling it. Because NFTs are unique and trade thinly, they are harder to value than fungible tokens, so the designs differ from pooled markets.

Peer-to-peer loans. A borrower lists an NFT and a lender makes an offer with a loan amount, interest and term, or the lender posts an offer on a collection and borrowers accept it. The NFT is escrowed in a smart contract. If the borrower repays by the due date, the NFT returns. If not, the lender can claim the NFT. These loans are typically fixed-term and fixed-rate.

Peer-to-pool loans. Lenders fund pools tied to a collection or a pricing model. Borrowers take loans from the pool against NFTs, often based on a floor-price estimate or oracle. Some structures allow liquidation by auction if value drops.

How to take an NFT loan:

1. Connect your wallet to an NFT lending platform that supports your collection.
2. Review offers: principal, interest, duration, repayment amount and what happens at default.
3. Approve the NFT for escrow and accept an offer.
4. Receive funds and track the due date.
5. Repay in full before expiry to get the NFT back.

How to lend against NFTs: choose collections whose floor price and trading volume you understand, set a conservative loan-to-value, and accept that your recovery on default is the NFT itself, which you may need to sell in a thin market.

NFT lending platforms, supported collections and liquidity change quickly, so check current platform status and audits rather than relying on older lists.

NFT loans concentrate several risks that pooled crypto loans reduce. Read the terms of each loan carefully.

• Valuation risk. A floor price describes the cheapest listed item, not what your specific NFT would sell for. Rare traits may be worth more or may be illiquid.
• Liquidity risk. A lender who takes an NFT at default must find a buyer. In weak markets that can take time or force a large discount.
• Fixed-term pressure. If you cannot repay on the due date, you may lose the NFT even if the loan was small compared with its value. Check whether a grace period exists, and whether partial repayment or renewal is possible.
• Contract and approval risk. Escrow contracts hold your asset. Use only audited, established platforms, and revoke unnecessary token approvals afterward.
• Listing and scam risk. Fake collections, copy-cat sites and unsolicited offers in direct messages are common. Verify the contract address of the collection before approving anything.
• Collateral effects. Locked NFTs may be ineligible for claims such as airdrops or access perks that depend on holding in your own wallet. Confirm what the escrow contract allows.

Comparing offers:

1. Calculate total repayment, not just the headline rate. A short-term loan with a small rate may carry a high annualized cost.
2. Check platform and lender fees and any origination charge.
3. Compare the loan amount with realistic sale prices of similar items.
4. Ask whether you are comfortable losing the NFT. If not, borrow less.

Renting NFTs, for example for games, is a related but different service. The owner keeps the asset and the renter pays for use, with no loan or liquidation involved.

Beyond price moves, DeFi lending has structural risks that every lender and borrower should understand.

• Smart contract risk. Bugs can drain funds even in audited code. Audits reduce risk but do not remove it. Spreading deposits across protocols limits the damage of one failure.
• Oracle risk. Lending markets depend on price feeds. A wrong or manipulated price can cause unfair liquidations or let attackers borrow too much.
• Stablecoin depeg risk. If a stablecoin you hold or borrow loses its peg, your math changes quickly. Know how each is backed.
• Liquidity risk. In stressed markets, pools can be fully borrowed, which blocks withdrawals until repayments arrive.
• Governance and admin risk. Parameter changes, asset listings and emergency pauses are made by governance or curators. Follow the protocol's announcements and read proposals that affect your assets.
• Wrapped and staked asset risk. Liquid staking tokens, wrapped Bitcoin and restaked assets add the issuer's or protocol's risk on top of the lending protocol's. Using them as collateral can also expose you to price gaps from the underlying asset.
• Wallet security. Use a hardware wallet for larger balances, review approvals periodically and revoke those you no longer need.

Habits that help:

1. Keep a buffer above the liquidation point.
2. Set price or health-factor alerts.
3. Keep gas funds on the same network as the position.
4. Never borrow money you cannot afford to lose.
5. Record every position, rate and date for tax purposes.

Nothing here is financial advice. DeFi can lead to total loss, and returns are never guaranteed.

Several related activities are often mixed up with lending, so it helps to separate them.

Liquid staking tokens as collateral. Tokens such as stETH from Lido, rETH from Rocket Pool and similar assets from other staking protocols earn staking rewards while sitting in your wallet, and many lending markets accept them as collateral. This can raise your return, but you carry staking-protocol risk, possible price gaps against the underlying asset, and withdrawal queue effects. Loops that borrow against staked assets to buy more of them amplify both gains and liquidation risk. Some staking and lending products, such as ether.fi, combine earning and borrowing in one app, which adds another layer of platform risk.

Aggregators and curated vaults. Products such as Lulo on Solana or vault curators such as Gauntlet route deposits across lending markets for you. This saves time, but you rely on the router or curator and on every underlying market.

Centralized exchange earn and lending products. Exchanges including OKX, Bitget, Gate, Bitvavo and Backpack offer lending or earn features. These are custodial: the company holds your assets, sets terms and may restrict withdrawals. Eligibility and available products depend on your country and change over time, so read the current terms in your jurisdiction. Some exchanges offer margin or leverage, which behaves differently from on-chain loans and can liquidate you under exchange-specific rules.

Choosing between them: non-custodial DeFi gives transparency and control but makes you responsible for security and monitoring. Custodial products are easier to use but expose you to company and regulatory risk. Whichever you pick, start small and confirm how to withdraw before you add more.