Coinbase has introduced a Bitcoin-backed loan service, enabling users to borrow up to $100,000 in USD Coin (USDC) without selling their BTC holdings. This new offering, powered by the decentralized finance (DeFi) protocol Morpho, operates on the exchange’s Ethereum Layer 2 network, Base. The service is currently available to U.S. customers, excluding those in New York, with plans for further market expansion.
Coinbase Rolls Out Bitcoin-Backed Loans Powered by Morpho Protocol
In a recent development, the Coinbase crypto exchange has launched a new loan service allowing users to borrow up to $100,000 USDC using Bitcoin as collateral. The service leverages Morpho, a DeFi protocol, to facilitate these loans 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 ongoing SEC vs. Coinbase case, Binance has filed a joint notice with the district court, leveraging the partial victory Coinbase secured in its rulemaking petition lawsuit. Binance aims to use this judgment to support its request for the dismissal of the US SEC’s claims. The exchange argues that the SEC’s complaint fails to meet the requirements of 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 is streamlined to ensure efficiency and user convenience. There are no fees associated with the conversion of Bitcoin to cbBTC, and the entire transaction is completed on-chain. Users can utilize the borrowed USDC for various purposes, including expenses, global transfers, or converting it into U.S. dollars as needed.
Flexible Repayment Terms and Risk Management
One of the key features of Coinbase’s Bitcoin-backed loans is the absence of a fixed repayment schedule. Borrowers have the flexibility to repay their loans at their own pace, provided they maintain a safe loan-to-value (LTV) ratio. The LTV ratio ensure that the loan remains adequately collateralized, mitigating 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.
Currently, Coinbase’s Bitcoin-backed loan service is available to customers in the United States, excluding New York. The company plans to expand this service to additional markets to broaden its accessibility to a wider user base. While Bitcoin is the initial collateral option, Coinbase will support more cryptocurrencies in future iterations of the loan service.
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.
Ronny Mugendi
Ronny Mugendi is a seasoned crypto journalist with four years of professional experience, having contributed significantly to various media outlets on cryptocurrency trends and technologies. With over 4000 published articles across various media outlets, he aims to inform, educate and introduce more people to the Blockchain and DeFi world. Outside of his journalism career, Ronny enjoys the thrill of bike riding, exploring new trails and landscapes.
Disclaimer: The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
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