Coinbase has unveiled a new financial product, offering Bitcoin-backed loans to its users in the United States, allowing them to borrow USDC stablecoin without selling their Bitcoin. This service, is powered by the open-source Morpho protocol and built on the Base blockchain.
In a recent announcement, Coinbase revealed the launch of this lending service.
The company also suggested potential future expansion, hinting at the inclusion of more collateral options and broader regional availability. According to Coinbase: "Bitcoin-backed loans are here. Borrow USDC against Bitcoin without selling it. Rolling out to US users (excluding NY) starting now. More collateral assets and regions to come. Powered by Morpho Labs and built on Base. The future of finance is on-chain."
A subsequent blog post from the exchange highlighted the benefits of the new product, particularly its capability to defer potential tax liabilities by enabling users to borrow against their Bitcoin instead of selling it. Coinbase emphasized the smooth integration of on-chain technologies like Morpho and Base as central to making financial services more accessible and intuitive.
Coinbase positions this offering as a significant advancement in empowering customers with greater control over their finances. The USDC loan facility allows users to use Bitcoin (BTC) as collateral. It involves converting BTC to Coinbase's Bitcoin wrapper, cbBTC, and depositing it into Morpho’s smart contracts. Users receive USDC in return, usable in various applications. For example, they can earn over 4% in rewards and transfer the stablecoin globally at no cost. Furthermore, USDC can be exchanged for USD, facilitating significant expenditures such as car purchases or mortgage down payments. Coinbase promises a streamlined process, with borrowing limits of up to $100,000 in USDC, depending on the Bitcoin collateral's market value.
Mixed Community Reactions Emerge Over Coinbase Loan Service
Interest rates under this service are variable, determined automatically by market conditions via Morpho, and lack a fixed repayment timetable. This flexibility has elicited diverse reactions from the crypto community. Concerns center around potential automatic liquidation should the value of the collateral fall below a critical level. As noted by influencer Kurt Knapp on X, this scenario could mean users lose ownership of their Bitcoin to Coinbase.
Critics have pointed out risks related to centralization and the unpredictability of variable interest rates, which they believe diverge from the decentralized ethos of DeFi. Ashley, a decentralization advocate, remarked on the trade-offs that might dissuade serious DeFi users from engaging with centralized platforms like Coinbase.
Community discussions also highlight risks such as market volatility and borrower unpredictability tied to frequently recalculated variable interest rates. A further drawback is the risk of liquidation during market downturns, which could lead to significant losses if Bitcoin's value drops dramatically. Technology innovation researcher Thomas Young has also raised flags about potential taxable events associated with using this lending product.
As Coinbase rolls out this service, addressing community concerns may be crucial to its success. While currently available only in the United States, the firm has plans for global expansion, eyeing the European Union as a prospective market.
This move aligns with USDC’s compliance with MiCA regulations, positioning the EU as a viable target market amid its efforts to scale internationally.