How Does Borrow Work?

How Does Borrow Work?

Borrow by Sats Terminal lets you take out a stablecoin loan against your Bitcoin in five straightforward steps. The platform handles all of the complex technical operations behind the scenes, so the process feels as simple as using a traditional lending app even though it is powered by decentralized finance protocols under the hood.

Here is a complete breakdown of how the process works from start to finish.

Step 1: Create Your Account

Getting started with Borrow takes less than a minute. You can sign up using:

• An email address
• A social login (Google, Apple, etc.)
• An existing crypto wallet (MetaMask, Coinbase Wallet, etc.)

When you create an account, Borrow automatically generates a self-custodial digital wallet for you through Privy. This wallet is what you will use to interact with lending protocols and receive your stablecoin loan. There is no KYC (identity verification) required, so you can start immediately.

For detailed sign-up instructions, see How to Create an Account on Borrow.

Step 2: Configure Your Loan

Once you are logged in, the loan configuration dashboard is where you decide the details of your loan. This is where Borrow's aggregator functionality shines.

Choosing Your Loan Amount

You start by specifying either how much you want to borrow (in USDC or another stablecoin) or how much BTC you want to deposit as collateral. The platform calculates the other value automatically based on current market prices and collateral requirements.

Comparing Rates Across Lenders

Borrow pulls live rates from multiple sources, including DeFi protocols like Aave v3 and Morpho Blue, and CeFi providers. For each option, you can see:

• Annual Percentage Rate (APR) — The yearly interest rate you will pay on your loan
• Collateral ratio — How much BTC you need relative to the loan amount
• Available liquidity — How much is available to borrow from that particular lender
• Blockchain — Which network the protocol operates on (Ethereum, BASE, Arbitrum, etc.)

This comparison lets you find the best deal without visiting each protocol individually. Some lenders may offer lower rates but require more collateral, while others might have higher rates but more flexible terms.

Selecting a Lending Protocol

After reviewing the options, you select the lending protocol and chain combination that works best for your needs. Borrow confirms the loan terms, including the estimated interest cost and the amount of BTC you need to deposit.

Step 3: Deposit Your BTC

After configuring your loan, Borrow provides you with a Bitcoin deposit address. This is a standard BTC address on the Bitcoin mainnet, so sending Bitcoin to it works the same as any normal Bitcoin transaction.

How the Deposit Works

1. Copy the deposit address displayed on screen
2. Open your Bitcoin wallet (any wallet that holds native BTC)
3. Send the required amount of Bitcoin to the deposit address
4. Wait for the transaction to be confirmed on the Bitcoin network

The platform monitors the Bitcoin blockchain for your incoming transaction and updates the status in real time. You can track the progress directly in the Borrow interface.

Important Notes About Deposits

• Send only the exact amount specified, or slightly more to account for any Bitcoin network fees
• The deposit address is unique to your loan request, so funds will be correctly attributed to your account
• Bitcoin network confirmation times vary but typically take 10 to 60 minutes depending on network congestion and the fee you set in your wallet

Step 4: Automatic Collateral Preparation

This is the step where Borrow saves you the most time and effort. Once your BTC deposit is confirmed, the platform automatically handles a series of technical operations that would otherwise require significant blockchain knowledge.

What Happens Behind the Scenes

Bridging

Your native Bitcoin needs to move from the Bitcoin network to an EVM-compatible blockchain like Ethereum or BASE. Borrow uses a bridge to transfer your BTC across chains securely. Bridging is typically the longest step in the process, as it requires confirmations on both the source and destination blockchains.

Wrapping

DeFi lending protocols cannot accept native Bitcoin directly. Instead, they use wrapped Bitcoin tokens — ERC-20 representations of BTC that exist on Ethereum and other EVM chains. Common wrapped Bitcoin variants include WBTC, cbBTC, and BTCB. Borrow automatically converts your BTC into the correct wrapped token for the protocol you selected.

Protocol Deposit

Once your Bitcoin has been bridged and wrapped, Borrow deposits it as collateral in the lending protocol smart contract. This step is what officially secures your collateral and enables your loan.

Why Automation Matters

Without Borrow, you would need to manually:

1. Find a trustworthy bridge service
2. Bridge your BTC to the correct chain
3. Swap it for the right wrapped Bitcoin token
4. Approve the lending protocol to access your tokens
5. Deposit the tokens as collateral
6. Initiate the borrow transaction

Each of these steps involves separate transactions, gas fees, and potential points of confusion. Borrow compresses all of this into a single automated workflow.

Step 5: Receive Your Stablecoins

Once your collateral is deposited in the lending protocol, your stablecoin loan is issued automatically. The borrowed stablecoins (typically USDC) are sent to your Borrow wallet.

What You Can Do With Your Stablecoins

From your wallet, you can:

• Transfer them to any external wallet or exchange
• Convert them to fiat currency by sending to an exchange and withdrawing to your bank
• Use them in other DeFi protocols for yield farming, providing liquidity, or other strategies
• Hold them as a stablecoin position while your BTC collateral stays in the lending protocol

Checking Your Loan Status

After receiving your stablecoins, you can view your active loan in the Borrow dashboard. The dashboard shows:

• Your current collateral value
• The outstanding loan balance
• Accrued interest
• Your health factor (how close your position is to liquidation)
• Options to repay or add more collateral

What Happens During the Life of Your Loan

Interest Accrual

Interest on your loan accrues continuously, based on the APR of the lending protocol you selected. Most DeFi protocols use variable interest rates that fluctuate based on supply and demand. You can monitor your current rate in the Borrow dashboard.

Managing Your Collateral Health

Each lending protocol has a liquidation threshold — if the value of your collateral drops below a certain ratio relative to your loan, the protocol may automatically sell some of your collateral to repay part of the loan. This is called liquidation.

To avoid liquidation, you can:

• Add more collateral if BTC's price drops
• Repay part of your loan to improve your collateral ratio
• Monitor your health factor regularly through the dashboard

Repaying Your Loan

When you are ready to close your position, you repay the loan amount plus accrued interest. Once repaid, your collateral is unlocked and returned to you. You can then withdraw your wrapped Bitcoin or convert it back to native BTC.

Understanding the Technology Stack

For users who want to know what is happening under the hood, Borrow integrates several layers of technology.

Privy Wallets

Borrow uses Privy for wallet management, which provides self-custody without the complexity of managing seed phrases. Your wallet is created when you sign up and is secured through Privy's key management infrastructure.

Multi-Chain Support

The platform supports loans across six blockchains: Ethereum, BASE, Arbitrum, Optimism, Polygon, and BSC. This multi-chain approach means you can access liquidity wherever rates are most favorable or fees are lowest.

Smart Contract Interaction

When your collateral is deposited into a DeFi protocol, it is managed by audited smart contracts. These contracts automatically enforce the loan terms, including collateral requirements, interest rates, and liquidation rules. No human intermediary is involved in the lending process itself.

Getting Started

Ready to borrow against your Bitcoin? The process starts with creating a free account. Visit How to Create an Account on Borrow for a step-by-step guide, or learn more about the platform in What Is Borrow by Sats Terminal?.

For questions about costs, head to What Are the Fees and Costs on Borrow?.