"Buy, Borrow, Die" Tax Strategy May Be Adding Hidden Credit Risk to DeFi Pools

WHY IT MATTERS

In traditional finance, some wealthy people avoid taxes by borrowing money against their investments instead of selling them. Think of it like owning a house that has gone up in value — instead of selling the house and paying taxes on the profit, you take out a loan using the house as collateral. In DeFi (decentralized finance), people can do something similar using crypto lending platforms, which are like automated banks run by computer code. The concern is that if many people are borrowing this way and never plan to sell their crypto to repay, the lending pools — shared pots of money that other users deposit to earn interest — could be riskier than they appear. If crypto prices drop suddenly, all these loans could go bad at once, potentially causing losses for the people who deposited their funds into those pools. This matters because DeFi users may not realize the level of risk they are exposed to when they lend their assets.