Coinbase Lets Users Borrow $100K USDC With Bitcoin As Collateral: Details

Coinbase has launched its new Bitcoins backed loans service which allows customers to get USDC loans up to $100,000 without selling their Bitcoins. This new product built on the Morpho DeFi protocol is based on the exchange’s Ethereum layer 2 solution, base. The service is only open to the United States customers and not for those in New York with the possibility of extending to other markets.

Coinbase Rolls Out Bitcoin-Backed Loans Powered by Morpho Protocol

Recently, the Coinbase crypto exchange has started a new loan service where users can borrow up to $100,000 USD Coin (USDC) with Bitcoin as collateral. These loans are enabled by the service through the use of Morpho, a DeFi protocol on the Base blockchain. This integration is a step in the exchange’s efforts to merge traditional financial services with DeFi.

More so, Bitcoin pledged by users is converted into cbBTC, a wrapped version of BTC created by Coinbase. This wrapped token enables Bitcoin to function seamlessly within decentralized finance systems. By utilizing cbBTC, Coinbase ensures that the collateral remains compatible with Morpho’s lending platform. This provides users with access to liquidity without the need to liquidate their Bitcoin holdings.

Meanwhile, in the SEC vs. Coinbase case, Binance has filed a joint notice to the district court, using the partial win that Coinbase received in the rulemaking petition lawsuit. Binance is planning to use this judgment to have the US SEC’s claims dismissed. The exchange further notes that the SEC’s complaint does not satisfy the Howey test.

How the Loan Process Works

Notably, Coinbase users can initiate a loan by pledging their Bitcoin as collateral through the Coinbase app. Once the Bitcoin is pledged, it is converted to cbBTC at a 1:1 ratio and transferred to the Morpho DeFi protocol. In return, borrowers receive USDC loans directly into their Coinbase accounts within seconds, allowing for quick access to funds.

Additionally, the process streamlines efficiency and ensures user convenience. Coinbase charges no fees for converting Bitcoin to cbBTC, and it completes the entire transaction on-chain. Users can utilize the borrowed USDC for various purposes, including expenses, transfers, or converting it into U.S. dollars.

Flexible Repayment Terms and Risk Management

Coinbase’s Bitcoin-backed loans have one significant characteristic, the lack of a set repayment plan. The borrowers are allowed to repay the loans in a schedule of their choice as long as the LTV ratio is safe. The LTV ratio ensure that the loan is sufficiently secured in order to reduce the risk of liquidation.

However, if Bitcoin’s value decreases, the exchange will liquidate the collateral to cover the loan.. This mechanism ensures that the loan remains secure and the exchange can manage risks associated with BTC volatility. 

At the moment, Coinbase’s Bitcoin-backed loan service is only available in the United States but not in New York. For the initial collateral, Coinbase has adopted Bitcoin but plans to incorporate other digital currencies in subsequent versions.

Additionally, the crypto exchange has continued to expand its offerings, recently adding Peanut the Squirrel (PNUT) meme coin on the Solana network. PNUT will be available for trading on the exchange starting this January, with the trading pair PNUT-USD launching in phases.