Coinbase customers in the United States (excluding New York) can now borrow up to $100,000 in USD Coin (USDC) by using their Bitcoin as collateral. This service is provided through a partnership with Morpho, an on-chain lending protocol built on Coinbase’s Base blockchain.
Here's a breakdown of how it works:
Customers can pledge their Bitcoin as collateral, which is then converted into cbBTC - a wrapped version of Bitcoin created by Coinbase. This wrapped token enables Bitcoin to be used within decentralized finance (DeFi) systems.
The cbBTC is used to borrow USDC loans from Morpho, which can be used for expenses, transferred globally, or converted into U.S. dollars. There are no fixed repayment schedules, and borrowers can repay at their own pace as long as the loan remains within a safe value range relative to the collateral. However, if Bitcoin’s value drops significantly, liquidations may occur to ensure the loan remains covered.
This partnership integrates Coinbase's large customer base with Morpho's decentralized lending platform, expanding the reach of DeFi services. It's worth noting that crypto lending experienced turbulence in 2022 with the bankruptcies of Celsius and BlockFi, which resulted in billions in losses and eroded trust in crypto lending. In this case, Coinbase is facilitating the loans, which are ultimately powered by the decentralized autonomous organization (DAO) governing the Morpho protocol.
Benefits of Crypto-Backed Loans:
One benefit of crypto-backed loans is the ability to borrow against Bitcoin without selling it, which can help users defer capital gains taxes. Another advantage is that on-chain lending systems operate transparently, using automated smart contracts to manage funds efficiently.
This move follows Coinbase's September launch of cbBTC, which enabled customers to interact with DeFi applications. By combining cbBTC with USDC loans, Coinbase is bridging traditional finance with decentralized tools, making these services more accessible to users.
To get started, customers can navigate to the Cash tab in their Coinbase accounts, pledge Bitcoin, and receive USDC within seconds. Loan interest rates adjust automatically based on market activity on the Base blockchain. This launch marks another step toward making decentralized finance more user-friendly.
