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Why borrow instead of sell
Borrowing is not automatically better. It is better under specific conditions, worse under others, and this page is about telling those apart.
Selling converts an asset into cash and ends your exposure. Borrowing converts an asset into cash and keeps it. The second option costs interest; the first costs whatever the position does next.
The three costs of selling#
People compare an interest rate against zero and conclude that borrowing is expensive. That comparison is missing two of the three costs.
- Tax. In most jurisdictions, selling an appreciated position realises the gain and triggers a bill. Borrowing generally does not — though this depends entirely on where you are, and we are not the people to ask.
- Forgone return. Whatever the position does after you sell, you no longer own it. If your thesis was right, this is by far the biggest number on this page.
- Re-entry. Buying back means buying back at a price you do not control, and many people simply never do.
A worked comparison#
You need $25,000 for twelve months. You hold enough tokenized equity to cover it either way. Assume a 20% capital-gains rate on an unrealised gain that makes up 35% of the position, and a 9% annual return over the period.
Option A · sell $25,000
Capital gains tax
$25,000 × 35% unrealised × 20%
Return forgone over 12 months
9% on the $25,000 you no longer hold
Interest paid
Option B · borrow $25,000 against it
Interest at 4.17% APR
on the drawn balance, for 12 months
Capital gains tax
Return kept
the position is still yours
Borrowing is ahead by $2,957 in this scenario — but that gap is almost entirely the assumed 9% return. Change that assumption and the answer changes with it.
When selling is the better call#
Be honest about your expected return
The comparison above collapses the moment you expect the position to fall. If your basket drops 20% over the year, you paid $1,043 in interest, lost $5,000 of collateral value, and your credit line shrank by roughly $2,900 — while a seller sidestepped all three. Leverage amplifies both directions; that is the whole nature of it.
Borrowing tends to win when
- You genuinely intend to hold the position for years.
- Your expected return comfortably exceeds the borrow rate.
- Selling would realise a meaningful taxable gain.
- The cash need is temporary and you have a clear repayment path.
- You draw well below your limit, leaving a wide liquidation buffer.
Selling tends to win when
- You were going to reduce the position anyway.
- You have no confident view on where it goes next.
- The position sits at a loss, so there is no tax to defer.
- You would need to draw close to the maximum limit to cover the need.
- You cannot service the interest without drawing more.
How CredX compares to the alternatives#
| CredX | Broker margin loan | Sell | |
|---|---|---|---|
| Keeps market exposure | Yes | Yes | No |
| Taxable event on opening | No | No | Usually yes |
| Rate set by | Pool utilisation, public | The broker, discretionary | — |
| Margin call mechanism | On-chain, published thresholds | Broker discretion, can be same-day | — |
| Warning before forced sale | Smart Deleveraging at 1.10 | Varies, sometimes none | — |
| Collateral custody | Vault contract you control | The broker | — |
| Available 24/7 | Yes | No | No |
The honest caveat about that table
A broker is a regulated entity with recourse, insurance schemes and a complaints process. A smart contract is not. What you gain in transparency and availability, you give up in legal protection — spelled out in full here.
A rule of thumb#
Borrow an amount you could repay from income or savings, not from the collateral itself. If the only way out of the loan is selling the thing securing it, you have not avoided selling — you have just delayed it and added interest.
Run your own numbers
The homepage calculator has a borrow-vs-sell comparison with adjustable horizon and expected return. Set the expected return negative to see the case against.