Publicly-traded United States-based cryptocurrency exchange Coinbase is offering Bitcoin-backed (BTC) loans to its U.S. users once again.
Eligible United States-based customers — which excludes New York residents — can borrow up to $100,000 in the USD Coin (USDC) stablecoin from Coinbase while leveraging their Bitcoin holdings as collateral, according to a recent announcement. In order to qualify as collateral, the Bitcoin need to be kept on the exchange.
In an X post, Coinbase explained that the firm planned to add support for more collateral assets in addition to Bitcoin. The company also explained that the service is powered by lending protocol Morpho Labs built on Coinbase’s Ethereum (ETH) layer two Base.
Coinbase does provide an interface to access Morpho’s decentralized lending protocol, but it does nto directly manage the lending itself. The exchange exclaimed: “The future of finance is onchain.”
The details
In order to use the new service, Coinbase users need to convert their Bitcoin into the exchange’s wrapped Bitcoin token cbBTC. Then, users can use this token — which is redeemable for Bitcoin — in the decentralized finance (DeFi) protocol Morpho and take a loan for USDC.
Unlike traditional loans, Morpho Bitcoin-backed loans do not have a fixed repayment schedule. Users can repay at their own leasure while obtaining the capital that they need without selling their Bitcoin investments.
An issue for the user arises if Bitcoin’s price falls enough for it not to meet the loan’s collateral requirements. In such cases the Bitcoin holdings are liquidated and the loan is considered repaid with any collateral remaining after repayment being returned to the user. Consequently, users need to frequently check their loan’s collateralization to avoid liquidation.
Coinbase previously offered crypto-backed loans under service name “Lend,” until it had to halt the service in 2023 due to regulatory pressure from the United States Securities and Exchange Commission (SEC). At the time, Coinbase published a post with title “the SEC has told us it wants to sue us over Lend. We don’t know why.” The post reads:
“Coinbase’s Lend program doesn’t qualify as a security — or to use more specific legal terms, it’s not an investment contract or a note. Customers won’t be “investing” in the program, but rather lending the USDC they hold on Coinbase’s platform in connection with their existing relationship.”
