A Few Use Cases for Advanced Borrowing
Shorting a token is the act of betting against it; in other words, you make money if the value of the token decreases.
To short ETH, one could deposit USDC as collateral and borrow ETH against it. Let's say they borrow 5 ETH. They would then sell the 5 ETH for USDC. If the price of ETH were to fall, they could buy back the 5 ETH for less USDC, therefore closing their borrow position and pocketing the difference.
Leverage uses a loan to buy more of an asset, thus increasing exposure and potential profits (but also losses).
To leverage a long ETH position, one could deposit ETH and borrow USDC against it. They would then use that USDC to buy more ETH. If the price of ETH were to rise, a portion of the ETH obtained could be sold to pay off the USDC loan, thus keeping the additional ETH as profit.
After creating a long or short position that uses leverage, one can cycle this leverage to further intensify their exposure to the position. For example, a user creating a short position against ETH would supply USDC, borrow ETH against it, then sell the ETH. To enter a leverage cycle, they would then supply the USDC generated from the ETH sale as additional collateral to borrow even more ETH, and repeat the cycle as many times as they choose. As each deposit of collateral allows for a smaller borrow position, there is a limit on the number of cycles that can be performed.