DeFi Lending Protocols Face Risks from Tax-Driven Borrowing

Investors are increasingly using DeFi lending protocols like Venus on BNB Smart Chain to borrow stablecoins against crypto collateral, a strategy used to defer capital gains taxes. While this avoids taxable events, it introduces systemic risks, as borrowers may delay liquidating positions during market downturns. Research highlights that these individual tax strategies effectively transfer risk to the shared lending pool, often without the protocol's awareness of the borrower's underlying tax motivations.