Coinbase Introduces Bitcoin-Backed Loans via Morpho on Base

Highlights:

• Coinbase is now offering Bitcoin-backed loans through Morpho for fast access to USDC. 
• Borrowers will get flexible repayment terms with over-collateralized loans.
• Coinbase plans to expand the loan service and add more options to help more users worldwide. 

Coinbase has introduced Bitcoin-backed onchain loans using Morpho, a decentralized lending protocol. The loans operate on Base, Coinbase’s Ethereum Layer 2 network. Customers can borrow up to $100,000 in USDC by pledging Bitcoin as collateral. Coinbase previously offered similar loans through its Borrow program, which ended in 2023.

Bitcoin-backed loans are here.

Borrow USDC against bitcoin, without selling it. Rolling out to US users (ex. NY) starting now. More collateral assets and regions to come. Powered by @MorphoLabs and built on @Base.

The future of finance is onchain.

Learn more:… pic.twitter.com/PoLdWLz6aV

— Coinbase 🛡️ (@coinbase) January 16, 2025

The new version of this service will let customers access loans wholly onchain. Users interact through Coinbase’s interface with Morpho, but Coinbase itself does not manage loans. The process starts by converting Bitcoin to Coinbase wrapped Bitcoin (cbBTC). This conversion occurs at a 1:1 ratio with no fees. After conversion, cbBTC is then sent to Morpho, and the USDC loan is disbursed in seconds. 

Flexible Loan Terms and Seamless Functionality

Bitcoin-backed loans require over-collateralization. To be eligible, borrowers need to have a minimum collateral ratio of 133%. This means that they can choose a loan-to-value (LTV) ratio greater than this threshold.

Liquidation takes place if the loan balance exceeds 86% of the value of the collateral in the market. After liquidation, Coinbase sells the collateral to repay the loan and cover a penalty fee. Moreover, only the remaining Bitcoin is returned to the borrower’s Coinbase account. 

The repayment terms of the loans are flexible. There are no fixed repayment schedules or due dates for the borrowers. Users have the option to repay at their own pace. Morpho sets automatic interest rates for the loans, and they are variable. Base block creation times determine the rates. In addition, the Coinbase app lists the current rates and loan details.

Expanded Features and User Benefits

Loans are currently available to residents of the United States, excluding New York. In the future, Coinbase will expand this service to more markets. Bitcoin is the only collateral accepted right now, but Coinbase wants to expand the list.

Borrowing against Bitcoin comes with a few advantages. Funds can be accessed without selling the user’s Bitcoin. This gives them the flexibility to defer tax events while retaining possession of their crypto assets. USDC can be used by borrowers, for example, to earn rewards, make payments, or pay large expenses. Borrowers can convert USDC to USD at a 1:1 ratio with no additional fees.

The introduction of cbBTC simplifies the borrowing process. It enables customers to use their Bitcoin holdings seamlessly onchain. Integrating decentralized lending protocols like Morpho highlights Coinbase’s commitment to enhancing financial services.

Coinbase Issues Disclaimer for Borrowers

Coinbase has included some disclaimers for borrowers, such as frequently changing interest rates based on market conditions. Borrowers should review the rates regularly to avoid unexpected increases. Coinbase does not charge additional fees for converting Bitcoin to cbBTC or disbursing USDC. However, other fees, such as spread and processing fees from third-party processors, may apply.

The Coinbase app allows borrowers to manage their loans directly. The app provides real-time updates and allows users to monitor their LTV ratio. Coinbase’s focus on transparency ensures that customers remain informed throughout the borrowing process. The move comes as Coinbase continues to battle the SEC in the United States. Recently, Coinbase won an interlocutory appeal request in the ongoing lawsuit.