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Coinbase launches a Bitcoin loan service, allowing users to borrow USDC without selling their Bitcoin holdings.
The service is based on the open source lending protocol Morpho and built on the Base blockchain, applicable to US users, excluding the state of New York.
Coinbase users borrow USDC with Bitcoin as collateral
The US-based cryptocurrency exchange announced this news on X (Twitter). Coinbase said this loan service may support more types of collateral in the future.
“Bitcoin loans are here. Borrow USDC against Bitcoin without having to sell. Start rolling out to US users (excluding New York). There will be more collateral types and deployment areas in the future. Powered by Morpho Labs and built on Base. The future of finance is onchain,” Coinbase said.
In article Coinbase then outlined the benefits of this new service. The company highlights the ability to defer potential tax implications by allowing users to borrow against Bitcoin instead of selling them.
Coinbase also points to the seamless integration of on-chain protocols such as Morpho and Base. According to the exchange, these integrations will make accessing financial services faster and easier.
“This is a huge step forward to empower our customers with greater control over their financial lives,” the blog excerpt reads.
Coinbase’s USDC loan program allows users to collateralize Bitcoin (BTC). BTC is converted to Coinbase’s Bitcoin wrapper, cbBTC, at a 1:1 ratio and transferred to Morpho smart contracts. In return, users receive USDC that can be used in a variety of ways. First, they can earn over 4% bonuses and send money globally with no fees.
Additionally, users can convert USDC to USD to pay for large expenses such as buying a car or prepaying a mortgage. Coinbase has also pledged to streamline the process, allowing users to borrow up to 100K USD in USDC, depending on the value of the Bitcoin collateral.
According to the blog, interest rates are fluctuating, with Morpho automatically adjusting based on market conditions. There is no fixed repayment schedule, creating flexibility. However, if the collateral value is not maintained sufficiently compared to the loan, the system will automatically liquidate. This caused the cryptocurrency community to have mixed reactions.
“This is going to be a big catch. People mortgage their BTC and then something happens that causes the price to plummet leading to an automatic liquidation and you no longer own your Bitcoin, which Coinbase does,” said Kurt Knapp, a famous user on X, comment.
Others are concerned about the risks from centralization and fluctuating interest rates, arguing that it is different from the decentralized mentality of DeFi.
“This may seem convenient for Coinbase users…but centralization and fluctuating interest rates do not sit well with serious DeFi users who value decentralization and cost efficiency,” said Ashley, an advocate of decentralization.
Taken together, these opinions revolve around market concentration and volatility. Fluctuating interest rates, recalculated every few seconds, can create uncertainty for borrowers.
“Coinbase claims they are restarting “Bitcoin borrowing,” but read the small print carefully. Coinbase is just an intermediary. They wrapped bitcoin into cbBTC and included an Ethereum-based DeFi lending protocol called Morpho. I wouldn’t touch this product with a 10ft stick,” said another user said.
Furthermore, the risk of assets being liquidated in the event of a sharp market decline is a significant obstacle. If Bitcoin value plummets, borrowers could lose their collateral, leading to major financial losses. Thomas Young, a technology innovation researcher, also did raised concerns about taxable events that may occur with this service.
As the platform rolls out services and explores new markets, its ability to address these concerns could determine the product’s success. Meanwhile, although the service is currently limited to the United States, Coinbase is planning to expand internationally.
EU could be the next market due to USDC’s alignment with MiCA regulation. Coinbase’s recent strides toward regulatory clarity in Europe position the EU as its next potential market amid plans to expand the service globally.
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