Coinbase Launches Bitcoin-Backed Loans

In an effort to bridge traditional finance and decentralized finance (DeFi), Coinbase has unveiled a new loan service allowing users to borrow up to $100,000 in USD Coin (USDC) by pledging Bitcoin (BTC) as collateral. The service, powered by the Morpho Protocol on Coinbase’s Ethereum Layer 2 network, Base, is currently available to U.S. customers, excluding New York, with plans for broader expansion.

How It Works: Bitcoin to Liquidity

Coinbase’s innovative service utilizes cbBTC, a wrapped version of Bitcoin developed by Coinbase, to enable seamless integration with DeFi platforms.

1. Pledge BTC: Users pledge Bitcoin as collateral through the Coinbase app.
2. Convert to cbBTC: The pledged BTC is converted to cbBTC at a 1:1 ratio, ensuring compatibility with Morpho’s lending platform.
3. Receive USDC Loans: Borrowers receive USDC directly in their Coinbase accounts, accessible within seconds for use in transfers, expenses, or cash conversions.

This efficient, on-chain process ensures user convenience and eliminates fees for Bitcoin-to-cbBTC conversion.

Flexible Repayments and Risk Management

One of the standout features of this loan service is its flexible repayment structure. Borrowers are not bound by fixed repayment schedules and can repay at their own pace, provided the loan-to-value (LTV) ratio remains safe.

• Risk Mitigation: If Bitcoin’s value drops, Coinbase will liquidate the collateral to cover the loan. This ensures loan security and mitigates risks associated with BTC’s volatility.
• Future Expansion: While Bitcoin is the only supported collateral at launch, Coinbase plans to introduce additional cryptocurrencies in future iterations.

Broader Implications

This move marks Coinbase’s increasing push to integrate DeFi functionalities into its ecosystem. By partnering with Morpho Protocol, the exchange combines transparency and automation with user-friendly financial services.

Additionally, Coinbase continues to expand its offerings with new listings. The exchange recently added Peanut the Squirrel (PNUT), a meme coin on the Solana network, with trading set to begin this January under the PNUT-USD pair.

Regulatory Context

This launch comes amid ongoing litigation between Coinbase and the SEC. In a related development, Binance has filed a joint notice with the district court, citing Coinbase’s partial victory in its rulemaking petition lawsuit. Binance aims to leverage this ruling to dismiss SEC claims, arguing they fail to meet the Howey test.

The Future of Coinbase’s Loan Services

With this Bitcoin-backed loan service, Coinbase sets a precedent for integrating DeFi solutions with traditional financial structures. As the service expands to additional markets and supports more cryptocurrencies, it could significantly influence the evolution of crypto-backed financial services.

For now, this service offers users liquidity without the need to sell their Bitcoin holdings, reflecting a growing demand for flexible and innovative crypto-financial products.