It's not for tax reasons, it's usually because you want to participate in a protocol which uses some other asset but you don't want to sell your bag. eg. Buy

It's not for tax reasons, it's usually because you want to participate in a protocol which uses some other asset but you don't want to sell your bag. eg. Buy BTC for $1. BTC goes to $150, you think it might go to $10000 but you want to earn interest on your unrealised gains in the mean time. You use your BTC as collateral on a 100 USDC loan and put your 100 USDC in an interest earning pool. Now you're earning interest on USDC while you wait for your BTC to go to the moon. Alternatively, BTC goes to 125, you get margin called. You either deposit more BTC or you get liquidated and keep the remainder, less any liquidation fee that typically goes back to the protocol that gave you the loan. The amounts of collateral and margin needed totally depends on the protocol, collateral assets, etc. and in many cases is not even a fixed ratio. One example for you is DAI (1 DAI ~= 1 USD) which has a minimum of 150% collateralization ratio when being minted with ETH.