Plain English
In the US, borrowing against your crypto collateral is generally not a taxable event — same as borrowing against stocks via securities-based lending or against a home via HELOC. You take cash (or stablecoin) without selling, no capital gain triggers, and the collateral keeps growing tax-deferred while you have liquidity.
How it actually works
The key is that you retain ownership of the underlying asset. The protocol holds it as collateral; you receive borrowed assets that are liabilities, not income. Interest paid on the loan may be deductible as investment interest if itemized. Liquidation, however, IS a sale at the liquidation price — and triggers capital gain/loss at that moment.
What it means for you
This is the foundation of buy-borrow-die for crypto. For HNW principals, borrowing against BTC or ETH collateral on Aave, Morpho, Maker, or via a CeFi desk gives you liquidity without realizing gains. Used disciplined LTV ratios, it can fund real estate, business operations, or lifestyle needs without ever paying capital gains. Coordinate with CPA and counsel; structure is everything.
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Educational content only. Not investment, tax, or legal advice.