Coinbase has introduced Bitcoin-backed lending, allowing users to borrow USDC stablecoin without selling their Bitcoin holdings.
The service, powered by the open-source lending protocol Morpho and built on the Base blockchain, is available to US customers, except for customers in New York State.
Coinbase users will borrow USDC with Bitcoin collateral
The US-based crypto exchange shared the news in a post on X (Twitter). Coinbase said the lending facility can support more collateral in the future.
“Bitcoin-backed loans are here. Borrow USDC against Bitcoin, without selling it. Rolling out to US users (e.g. NY) from now on. More collateral assets and regions are coming. Powered by Morpho Labs and built on Base. The future of finance lies onchain,” Coinbase said.
In a follow-up blog, Coinbase highlighted the benefits of its new offering. It highlighted its ability to defer potential tax implications by allowing users to borrow against Bitcoin rather than sell it.
The company also points to the seamless integration of on-chain protocols such as Morpho and Base. According to the exchange, these integrations will make access to financial services faster and more intuitive.
“This is another important step toward giving our customers more control over their financial lives,” said an excerpt in the blog.
Coinbase’s USDC lending facility allows users to pledge Bitcoin (BTC) as collateral. The BTC is converted into Coinbase’s Bitcoin wrapper, cbBTC, at a 1:1 ratio and transferred to Morpho’s smart contracts. In return, users receive USDC, which can be used in a variety of ways. For starters, users earn over 4% in rewards and can ship worldwide for free.
Additionally, users can convert USDC to USD for significant expenses, including car purchases or mortgage down payments. Coinbase has also committed to streamlining the process, allowing users to borrow up to $100,000 in USDC depending on the value of their Bitcoin collateral.
Community reactions to Coinbase’s USDC lending facility
According to the blog, interest rates are variable, with Morpho automatically determining the factor based on market conditions. There is no fixed repayment schedule, making it flexible. However, if the value of the collateral against the loan is not maintained, this will lead to automatic liquidation. These technical details have drawn mixed reactions from the crypto community.
“This will be a huge undertaking. People put up their BTC as collateral and then an event happens that causes a price drop, resulting in automatic liquidation and you no longer own your Bitcoin, Coinbase does,” Kurt Knapp, a popular user on
Others expressed concerns about centralization risks and variable interest rates, citing departures from DeFi’s decentralized ethos.
“This sounds convenient for Coinbase users… but centralization and variable interest rates miss the mark for serious DeFi users who value decentralization and cost efficiency,” says Ashley, a decentralization advocate.
Taken together, these concerns center on centralization and market volatility, among others. Variable interest rates, which are recalculated every few seconds, can increase unpredictability for borrowers.
“Coinbase says they are restarting “Bitcoin lending,” but read the fine print. Coinbase is just the middleman. They wrap bitcoin in cbBTC and implement it in an Ethereum-based DeFi lending protocol called Morpho. I wouldn’t touch this product with a 10 foot pole,” another user added.
Furthermore, the risk of liquidation during market downturns is a significant disadvantage. If Bitcoin’s value plummets, borrowers could lose their collateral, potentially leading to significant financial losses. Thomas Young, a technology innovation researcher, also raised concerns about taxable events with this offering.
As the platform rolls out this service and explores new markets, its ability to address these issues could determine the product’s success. Although the service is currently limited to the US, Coinbase has plans to expand globally.
The EU is likely to be the next market due to USDC’s alignment with MiCA regulations. Coinbase’s recent moves toward regulatory clarity in Europe position the EU as the exchange’s potential next target market, amid plans to scale this offering internationally.
