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Tutorial: How to Borrow Assets on Compound

Jonah Baer
Jonah Baer
August 8th, 2021

Welcome to the Rabbit Hole 🐇 🕳️

Now that you learned how to lend on Compound, it's time to learn how to borrow.

The goal of this tutorial is simple:

Make sure you have the essentials to safely and securely borrow funds on Compound.

What you will need for this quest:

  • A web3 Wallet, such as Metamask
  • Some ETH to pay for gas fees

This tutorial assumes you understand how to use a web3 wallet and how to approve transactions + pay gas fees. If not, follow this guide to set up Metamask.

Note: To borrow funds on Compound, you're required to supply funds first. Make sure you check out our Compound lending tutorial here.

Alright, let’s dive in!

Compound 101

Compound is a decentralized lending and borrowing protocol on the Ethereum blockchain.

They are the third largest DeFi asset, at the time of writing, with around $9 billion in total value locked (TVL) and are considered the catalysts for DeFi Summer 2020.

Think of Compound like a high-yield savings account, where you can lend and borrow Ethereum-based assets without any middleman.

How to Borrow and Pay Back a Loan

Before I show you how to borrow an asset, it's important to understand why you would want to borrow in the first place:

  • You want long exposure to a particular asset
  • You want short exposure to a particular asset

Essentially, you borrow assets if you want to go long or short leverage on some asset, such as ETH. Learn more about why you would want to borrow an asset in this article.

Step 1: Borrow the desired asset.

Click the asset you want to borrow.

A pop-up will appear with the Borrow APY for the chosen asset and Distribution APY (amount of COMP/year). Type the amount you want to borrow, and pay close attention to the Borrow Limit Used bar.

After clicking Borrow, you are officially borrowing on Compound.

Step 2: Repay your loan (when you’re ready).

Once you’re ready to repay the loan, click the asset and toggle to Repay.

Type the amount you want to repay in the top bar. Make sure you have enough of the asset to cover the interest accrued.

That’s all you need for now!

Now that you can borrow on Compound, you’re well on your way to becoming a DeFi expert.

For a more technical overview, read the Compound protocol documentation. And for a deeper dive, read this article or watch this 10-minute video.

Lastly, if you have any questions, jump into the Rabbit Hole Discord!

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