Borrowing Assets Using ETH As Collateral

Why borrow an asset and use your ETH as collateral in the first place? Well, if you have precious ETH that you don't want to sell but want a portion of it to be utilized for generating yield, you'll look to a lending or minting protocol. You have a few options when it comes to depositing your ETH and borrowing against it:

Deposit ETH and borrow a stablecoin (On Maker, Compound, Aave)

Deposit ETH and borrow an altcoin (On Compound, Aave, Rari)

Deposit ETH and borrow the total crypto market cap index token, TCAP (On Cryptex Finance)

Whatever you choose to borrow, will depend on what you want to do with the borrowed asset. It really comes down to your strategy. Broadly speaking you have two options - Will it be deposited into a protocol to earn yield? Or will it be sold for another coin/token?

Here's why it's appealing for certain users to deposit ETH and borrow TCAP compared to a stablecoin or altcoin.

There are plenty of great use cases for borrowing a stablecoin for yield generating opportunities but when you borrow a stablecoin, you are borrowing a specific amount, at a specific time in comparison to the amount/price of ETH you deposited. The challenge is, you are borrowing a stablecoin vs a volatile asset. There is risk in this, during drawdowns you have to really watch your collateral ratios, as the stablecoin amount you borrowed stays the same, but the ETH amount you deposited as collateral is constantly changing. Just look at peaks and valleys on the 1 Year chart for ETH:


This is quite different when you deposit ETH to borrow TCAP. Since ETH makes up a large portion of the market cap, but not as large as BTC, ETH and TCAP move closer to one another, with ETH beating the overall market in most cases. During times of drawdowns, the assets are moving in the same direction, at a similar velocity, which allows for less time spent worrying about the collateral ratio. As you can see with the 1 Year chart, ETH has performed close or better than the total market:


Borrowing an altcoin with your ETH is even more challenging compared to a stablecoin or TCAP. You'd need the conviction that the ETH you deposit as collateral will grow faster than the altcoin you borrow. If not, you'll have to continue to add ETH to avoid getting liquidated. This 1 Year chart of UNI vs ETH is a good example. UNI exploded in comparison to ETH, you would have to keep adding ETH to cover the UNI you borrowed!


Let's use another altcoin example, this time we will look at what happens when ETH does grow faster than the altcoin you borrow. In the 1 Year chart we'll use LINK as the example. Since ETH grew faster than LINK, I do not have to worry about adding more ETH to avoid liquidations. However, once I borrow the LINK what do I do with it? You can deposit it directly into a lending protocol but in most cases, it won't earn more than what you are paying to borrow it. Your options to use LINK itself are limited. Or you'd sell LINK, but what would you sell the LINK for? Another asset you assume will grow faster than LINK.


Depositing ETH as collateral and borrowing TCAP, is a way to borrow an asset that moves very close to one another (because of its market cap weight) and also gives you the ability to borrow broad exposure to the entire market. If you think a coin/token will grow faster than the total market cap, you can borrow TCAP and sell it for a coin/token you think would outpace the total market, like a few examples here in the 1 Year chart:



The Windoooor

Deposit ETH > Borrow TCAP > Sell TCAP for ETH > Repeat Process

The VvvvvvvvCeeeeeee

Deposit ETH > Borrow TCAP > Sell TCAP for an altcoin


If you don't want to go long another asset vs TCAP, you can sell TCAP for ETH and put that ETH directly in yield generating opportunities. Some options in DeFi include (Please note, all APYs were quoted at the time of writing):

The LP Farmoooor

Deposit ETH > Borrow TCAP > Sell 50% of TCAP for ETH > Deposits 50% ETH / 50% TCAP into SushiSwap LP > Stake LP token

Why do this?

Earn LP fees (1% APY) & CTX staking rewards (31% APY)

The Ribbon Vaultoooor

Deposit ETH > Borrow TCAP > Sell 100% of TCAP for ETH > Deposits ETH into Ribbon covered call options vaults.

Why do this?

Earn Variable APY (10.48% APY) using covered call options vaults.

The Insurooor

Deposit ETH > Borrow TCAP > Sell 100% of TCAP for ETH > Deposit 100% of ETH into Unslashed

Why do this?

Earn variable APY for underwriting and collecting premium (11.42% APY)

The Hoppooooor

Deposit ETH > Borrow TCAP > Sell 100% of TCAP for ETH > Deposits 100% of ETH into Hop Exchange Pools

Why do this?

Earn variable APY (9% APY) for bridging L2's and mainnet


You have ETH that you want to be stored in a safe place, and have the ability to utilize a portion of it to generate yield. If you want to use a correlated broad market index token, instead of a stablecoin or altcoin, what better way to do that than depositing your ETH and borrowing TCAP?


Check out the Cryptex website:

You can borrow TCAP here:

Chat with the Cryptex community on Discord:

Stay up to date with announcements on Twitter:


Any views expressed in this post represent the sole analysis of Cryptex, (“Cryptex”) whose opinions are based solely on publicly available information. No representation or warranty, express or implied, is made as to the accuracy or completeness of any information contained herein. Cryptex expressly disclaims any and all liability based, in whole or in part, on such information, any errors therein or omissions therefrom. Cryptex also reserves the right to modify or change its views or conclusions at any time in the future without notice. Cryptex is an open-source, fully decentralized protocol. Cryptex is NOT an ICO. No sale has been solicited. The information contained in this post DOES NOT recommend the use of any Cryptex token, nor is it an offer to sell, a solicitation, or an offer to buy any Cryptex tokenized asset. Furthermore, CTX token rewards governing the protocol are granted by Cryptex to system providers with a value of ZERO. Always do your own research. The information contained in this post is not intended to be, nor should it be construed or used as, investment advice. No representation, recommendation, or warranty, express or implied, is made as to the future performance or functionality of any Cryptex token. Any unaffiliated use of this document, or the contents herein, is strictly prohibited without the prior written consent of Cryptex.






Read Next