TLDR:
- Through a partnership with Morpho, Coinbase is providing Bitcoin-backed USDC loans up to $100,000 on their Base blockchain, with Bitcoin being converted to cbBTC for collateral use.
- Currently exclusive to U.S. users outside of New York, this service plans to expand globally, with particular interest in the EU market.
- Interest rates vary in response to Morpho’s market dynamics, with no predetermined repayment timelines set.
- Poised as a tax-smart alternative to liquidating Bitcoin, this service lets users keep their crypto assets intact while gaining liquidity.
- There’s a mixed bag of feedback, ranging from cheers to skepticism over risks like centralization, possible automatic liquidation during downturns, and fluctuating interest rates.
Coinbase, a major player in the crypto exchange world, has unveiled a new lending program that allows users to employ their Bitcoin as collateral to borrow USD Coin (USDC).
Announced on January 16, 2025, this initiative stems from a collaboration with Morpho, a decentralized finance pioneer, operating on Coinbase's innovative layer-2 platform, Base.
This service offers customers the ability to secure loans in USDC up to $100,000, while their Bitcoin gets automatically swapped for Coinbase Wrapped Bitcoin (cbBTC) before being locked into Morpho’s smart contracts.
Right now, it's only available for residents in the U.S. excluding New York, but Coinbase is eyeing further global reach, with the EU likely being next due to MiCA regulation compatibility.
Crypto-backed loans on @coinbase powered by Morpho.
A vast audience can now leverage their BTC holdings for loans through Coinbase. pic.twitter.com/TRAFouZfZT
— Morpho Labs 🦋 (@MorphoLabs) January 16, 2025
The loan terms are flexible with no fixed repayment schedule, and rates shift based on Morpho’s market-linked approach adjusting automatically with market trends.
A significant draw is the potential tax benefits it offers: users can tap into liquidity without selling Bitcoin, possibly delaying capital gains tax implications.
Borrowed USDC can be converted to USD without costs, making it practical for big expenditures like cars or home down payments. Plus, there's a potential reward of over 4% on their USDC holdings, which can be sent worldwide for free.
Morpho’s role in this venture ensures notable trustworthiness. Their protocol ranks among the top decentralized applications by total value locked, controlling more than $3.2 billion as of 2024, a growth of 444%.
This offering comes after the launch of Coinbase’s cbBTC in September. Since then, cbBTC’s supply has reached $2.1 billion, an equivalent of 21,495.46 BTC, as reflected in Dune Analytics data by eekeyguy. Reaction from the community regarding the new lending option is varied.
Mixed Reception
While financial flexibility is admired by some, others are wary of possible downsides. Critics underline the threat of auto-liquidation during market slumps, where the lowering of Bitcoin’s price might end up forfeiting collateral.
Concerns about centralization feature prominently. Coinbase's intermediary role and the usage of wrapped (cbBTC) Bitcoin spark debates among DeFi advocates questioning its decentralized nature.
Questions arise around the shifting interest rates. Regular updates in rates could bring uncertainty for users attempting to map out their financial strategies, potentially reducing its appeal for long-term loans. Bitcoin The technology intricacies, like the Bitcoin to cbBTC transformation and its use in DeFi protocols, spark discussions about the service’s complexity and its inherent risks.
It requires users to keep a close watch over their loan-to-value ratios to avoid automatic liquidation, adding the task of vigilant management especially during periods of market fluctuations.
Blockonomi's Editor-in-Chief and founder of UK-based Kooc Media, a believer in open-source tech, blockchain, and a liberated internet. Ethereum-based His insights have been featured by major names like Nasdaq, Dow Jones, Investopedia, The New Yorker, Forbes, Techcrunch, and more. Reach out at [email protected].
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