- Coinbase has introduced USDC loans using Bitcoin as collateral.
- The loans are available to US customers.
- The loans have no fixed repayment and are automatically adjusted based on the activities on Base.
In an effort to expand its decentralized finance (DeFi) offering, Coinbase has introduced a new service that allows its US customers (excluding those in New York) to borrow USD Coin (USDC) by using their Bitcoin (BTC) as collateral .
This innovative feature, announced in a recent updateaims to provide users with quick and flexible access to funds without having to sell their Bitcoin.
The process uses Coinbase’s cbBTC stablecoin
Users pledge their Bitcoin (BTC), which is then converted into cbBTC, a packaged version of Bitcoin specifically designed by Coinbase for use in DeFi applications. This conversion allows Bitcoin, which typically operates outside the DeFi ecosystem due to its technical framework, to interact seamlessly with DeFi protocols.
The cbBTC is then sent to Morpho, a DeFi lending protocol built on Coinbase’s Base blockchain. In return, borrowers receive USDC, a stablecoin pegged to the US dollar, which they can use for various purposes such as covering expenses, international transfers or converting into US dollars.
Interest rates on these loans adjust dynamically based on market activity on the Base blockchain, reflecting Coinbase’s commitment to tailoring DeFi to user needs.
Notably, this lending service comes at a time when the crypto lending industry is under scrutiny following the high-profile bankruptcies of entities like Celsius and BlockFi in 2022, which have significantly eroded confidence in the crypto lending industry.
By integrating with Morpho, Coinbase is acting as an intermediary to potentially restore some trust, providing a transparent, smart, contract-based lending experience.
No fixed repayment terms
What sets this service apart is the lack of fixed repayment schedules. Borrowers have the freedom to repay the loan at their own pace, as long as the value of the Bitcoin collateral remains above a certain threshold relative to the loan amount.
However, should the value of Bitcoin fall, the system is designed to automatically liquidate enough collateral to cover the loan, ensuring the integrity of the protocol.
The benefits of such crypto-backed loans are numerous. First, they allow users to avoid immediate capital gains taxes by borrowing against their assets instead of selling them. Furthermore, these loans operate on the basis of blockchain technology, ensuring transparency and efficiency through automated processes.
