Coinbase Launches Bitcoin-Backed Onchain Loans Through Morpho DeFi Protocol
Coinbase has unveiled a new service offering Bitcoin-backed onchain loans, utilizing the decentralized finance (DeFi) protocol Morpho. This initiative allows Coinbase users to borrow up to $100,000 in USDC stablecoin by using their Bitcoin holdings as collateral. The service operates on Base, Coinbase’s Ethereum Layer 2 network, enhancing accessibility and efficiency for borrowers.
Max Branzburg, Coinbase’s Vice President of Product, highlighted the integration, stating, “The integration of Bitcoin-backed loans on Coinbase is ‘TradFi in the front, DeFi in the back.’ This offering exemplifies Coinbase’s continued commitment to bringing our customers’ financial lives onchain.” This statement underscores Coinbase’s strategy to blend traditional financial services with innovative blockchain technologies.
Previously, Coinbase offered Bitcoin-backed loans through its Borrow program, which was discontinued for retail users in 2023 to prioritize higher-demand products. The new loan service leverages Morpho, a leading DeFi protocol with $3.7 billion in total value locked, according to DefiLlama. Morpho has secured over $69 million in funding from notable investors, including a16z Crypto, Ribbit Capital, Pantera Capital, Brevan Howard, Coinbase Ventures, and Kraken Ventures.
When customers opt for an onchain loan, their Bitcoin collateral is converted 1:1 into Coinbase-wrapped Bitcoin (cbBTC) at no additional cost and transferred to Morpho. The DeFi protocol then disburses the USDC loan to the customer’s Coinbase account in under a minute. These loans are over-collateralized, requiring a minimum collateral ratio of 133%, though borrowers can choose higher loan-to-value (LTV) ratios based on their preferences.
To manage risk, if the loan balance reaches 86% of the collateral’s market value, the collateral is automatically liquidated to repay the loan and cover a penalty fee. Any remaining Bitcoin is returned to the customer’s Coinbase account after liquidation. Coinbase advises borrowers to regularly monitor their loan status, as the platform cannot prevent collateral liquidation on Morpho.
Interest rates for these onchain loans are variable and adjust automatically based on market conditions, changing with each block creation on the Base blockchain. The repayment schedule is flexible, allowing borrowers to repay at their own pace without minimum payments or due dates, provided they maintain a healthy LTV ratio to avoid liquidation.
At launch, Coinbase’s Bitcoin-backed loans are available to users in the United States, excluding New York, with plans to expand to additional markets in the future. Currently, Bitcoin is the sole collateral option, but Coinbase intends to support more cryptocurrencies in upcoming releases.
This new offering marks a significant step in integrating traditional financial services with decentralized platforms, providing users with greater flexibility and access to capital while leveraging their cryptocurrency assets.