I used to think this too… until I actually ran the numbers.
Most people assume borrowing in DeFi is something you only do when you’re stuck like a last resort that costs a lot. It sounds logical: you lock up collateral, take a loan, and pay interest. Of course it’s expensive… right?
Net spread = what you earn - what you pay to borrow
If that number is positive, borrowing isn’t a burden it’s a strategy.
Not really. Or at least, not in the way most people think.
The real question isn’t “how much does it cost to borrow?” It’s “what can you earn with what you borrowed?”
That difference is everything.
<h3 id="where-the-idea-comes-from">Where the idea comes from</h3>
This belief didn’t come out of nowhere.
Back in 2020–2021, borrow rates went crazy. In some cases, people were paying over 40% APR. If you weren’t paying attention, you could wake up to huge losses or even get liquidated.
Then there’s the comparison to traditional finance. A 5% borrow rate sounds high when you’re used to 2% savings accounts. But that comparison breaks quickly once you realize DeFi yields are much higher too.
So borrowing only looks expensive if you ignore what you do with the money.<img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/4532951d94b44872b8a227343e4a62dd.png">
<h3 id="what-the-numbers-look-like-today-2025-2026">What the numbers look like today (2025–2026)</h3>
Right now, things are a lot more stable:
<ul>
 <li>Borrowing stablecoins: ~3%–7% on protocols like Aave, Compound, Spark</li>
 <li>Earning yield: ~5%–15% on Curve, ~10%–20% on Pendle</li>
</ul>
So you’ll often see situations like:
<ul>
 <li>Borrow at 5%</li>
 <li>Earn 9%</li>
 <li>Net result: +4%</li>
</ul>
That gap isn’t random. It exists because lending markets and yield markets price risk differently.
<h3 id="the-simple-formula">The simple formula</h3>
Everything comes down to this:
Net spread = Yield − Borrow cost
Example:
<ul>
 <li>Borrow $10,000 at 5%</li>
 <li>Earn 8% on it</li>
 <li>Net profit: 3% → $300/year</li>
</ul>
You didn’t use your own cash just your collateral. That’s why borrowing here acts more like leverage than a cost.
<h3 id="how-this-plays-out-in-real-strategies">How this plays out in real strategies</h3>
1. Stablecoin loop (simple and common)You deposit ETH, borrow USDC at ~5%, and put it into a stablecoin pool earning ~9%.
→ Net: +4%
Solid, but yields can drop if too many people pile in.
2. ETH leverage play (this is where people lose money)Borrow at 6%, earn ~4% from staking ETH.
→ Net: −2%
This is where the myth comes from. The problem isn’t borrowing — it’s choosing a bad strategy.
3. Spark + Pendle (higher opportunity)Borrow at ~3%, deploy into higher-yield strategies (~12–18%).
→ Net: can reach +10%+
These opportunities don’t last forever, but they show what’s possible if you’re paying attention.
<h3 id="the-risks-this-is-where-it-gets-real">The risks (this is where it gets real)</h3>
A positive spread on paper doesn’t guarantee profit
<ul>
 <li>Liquidation risk: If your collateral drops, you can lose everything</li>
 <li>Rate spikes: Borrow rates can jump fast under high demand</li>
 <li>Protocol risk: Smart contract issues are still a real thing</li>
 <li>Yield drops: Incentives can disappear and kill your returns</li>
</ul>
So yeah it’s not “free money.” It’s a strategy that needs active management.
<h3 id="how-to-think-about-it-properly">How to think about it properly</h3>
Before borrowing, just run through this:
<ol>
 <li>What’s the borrow rate right now?</li>
 <li>Where am I deploying the funds?</li>
 <li>What’s the real (not advertised) yield?</li>
 <li>Is the spread still positive under stress?</li>
 <li>Am I safe from liquidation?</li>
</ol>
If you can’t answer these, don’t borrow.
<h3 id="the-bottom-line">The bottom line</h3>
“Borrowing in DeFi is expensive” isn’t exactly wrong it’s just incomplete.
If you borrow blindly, chase hype yields, or ignore risk, it will be expensive.
But if you understand the numbers, borrowing becomes a tool not a trap.
Right now, borrowing costs often sit around 3%–7%, while solid yield opportunities range from 8%–20%.
That gap is where the opportunity is.
Most people never see it because they stop at the interest rate. The few who go further and actually run the numbers see something completely different.
Disclaimer: Rates change constantly. Always check live data before making decisions, and never risk more than you can afford to lose.

MYTH VS. REALITY · DECENTRALIZED FINANCE

Table of Contents

Ajalaofweb3

Other articles published on Mar 26, 2026

Join our free newsletter for daily crypto updates!