Everyone loves talking about APY.
Borrow at 3%.
Earn 30%.
Repeat.
On paper, it looks almost too easy.
The most important number on the Aave dashboard isn't the borrow rate. It's the Health Factor.
And surprisingly, I don't try to maximize it—or minimize it.
Instead, I try to keep it comfortably above 2.0.
If you're curious why I borrow against Bitcoin instead of selling it, I explained the full strategy in "I Never Sell My Bitcoin Anymore — I Borrow Against It Instead"
Most People Focus on Borrowing Power
When you first discover Aave, it's tempting to think like this:
"If I can borrow another $100, why shouldn't I?"
That's exactly how many investors slowly increase their leverage.
Nothing bad happens.
Until one day Bitcoin drops 20%.
Then another 15%.
Suddenly you're no longer thinking about APY.
You're thinking about liquidation.
My Current Strategy
Here's how I currently use Aave.
- I hold WBTC as collateral.
- I borrow USDC.
- The borrowed USDC is invested in a WBTC/USDC liquidity pool.
- The pool generates trading fees.
- Every week I use the USDC fees to repay part of the loan.
I don't repay the loan with my salary.
I don't sell my Bitcoin.
I let the liquidity pool slowly reduce the debt.
That small difference completely changes the psychology.
This isn't my only source of passive crypto income. I also shared my real-world experience with liquidity pools in "What 100%+ APR on Solana Actually Looks Like"
I Could Borrow More…
Today I could easily borrow another $100.
My collateral would allow it.
The math even looks attractive.
Borrow at roughly 3–4%.
Earn significantly more from LP fees during good market conditions.
Sounds easy.
But I won't do it.
Not because it's impossible.
Because it doesn't improve my overall system.
My Goal Isn't Maximum APY
Many DeFi investors optimize for one metric:
Highest return.
I optimize for something different.
The probability of still being invested five years from now.
A slightly lower return with a comfortable Health Factor helps me sleep much better than squeezing every possible dollar out of borrowed capital.
The same long-term mindset is why I believe even a relatively small Bitcoin position can become meaningful over time. I explored that idea in "How Rare Will 0.1 Bitcoin Be In The Future?"
My Simple Rules
After several months, I've settled on a few personal rules.
- I never sell my Bitcoin just because I need liquidity.
- I borrow only against assets I intend to hold for years.
- LP fees—not my salary—should gradually reduce debt.
- I don't borrow simply because borrowing is available.
- I prefer consistency over maximizing returns.
These rules remove a lot of emotional decision-making.
Health Factor Isn't About Avoiding Liquidation
Most people think the Health Factor is only important because liquidation starts below 1.0.
Technically that's true.
Psychologically it isn't.
A healthy buffer means:
- less stress during market corrections,
- fewer emotional decisions,
- more freedom to let long-term investments work.
For me, that's far more valuable than an extra few dollars of borrowed capital.
Why I Also Hold an ETH Liquidity Pool
Besides my Bitcoin strategy, I also run an ETH/USDC liquidity pool.
Unlike my Bitcoin position, I don't use those rewards to repay debt.
Instead, I claim the rewards in ETH.
Over time, that slowly increases my Ethereum holdings while my Bitcoin-backed loan is being reduced independently.
I like separating the two systems.
One grows my ETH position.
The other slowly removes leverage.
My Long-Term Plan
I'm in no hurry.
Every week my Bitcoin liquidity pool pays a little toward the loan.
Every month my Ethereum position grows a little larger.
Every year my overall leverage becomes smaller.
That's exactly the direction I want.
One lesson I've learned is that DeFi isn't only about earning more.
It's about building a system that you can continue using during both bull and bear markets.
Anyone can maximize leverage.
Much fewer investors build a strategy they can confidently follow for years.
For me, keeping my Health Factor above 2.0 isn't about fear.
It's about giving my future self fewer reasons to make emotional decisions.
And if you're building a long-term Bitcoin strategy for yourself or your family, you may also enjoy "How Much Bitcoin Your Family Needs to Build Wealth"
If you'd like to calculate potential staking rewards or compare different staking opportunities, I've built a free calculator here: CryptoStakingCalc.com.
