Coinbase has introduced Bitcoin-backed loans, which enable users to borrow up to $100K USDC by utilizing Bitcoin as collateral through the Morpho protocol.
The new Bitcoins-backed loans service, which Coinbase has introduced, enables customers to obtain USDC loans of up to $100,000 without the need to sell their Bitcoins. The Morpho DeFi protocol is the foundation of this new product, founded on the Ethereum layer 2 solution, the base of the exchange. The service is exclusively available to consumers in the United States and not to those in New York. However, there is a potential for the service to be expanded to other markets.
Bitcoin-Backed Loans Are Now Available on Coinbase Powered by the Morpho Protocol
The Coinbase crypto exchange has recently implemented a new loan service that allows users to borrow up to USD 100,000 coins (USDC) using Bitcoin as their collateral. The service enables these loans using Morpho, a DeFi protocol on the Base blockchain. This integration is a significant advancement in the exchange’s endeavors to integrate traditional financial services with DeFi.
The Bitcoin user’s pledge is also converted into cbBTC, a repackaged version of BTC that Coinbase has developed. This bundled token facilitates the seamless operation of Bitcoin within decentralized finance systems. Using cbBTC, Coinbase guarantees that the collateral is compatible with Morpho’s lending platform. This enables users to access liquidity without liquidating their Bitcoin holdings.
In the meantime, Binance has submitted a joint notice to the district court in the SEC vs. Coinbase case, utilizing the partial victory that Coinbase achieved in the rulemaking petition litigation. Binance intends to use this judgment to dismiss the claims of the US Securities and Exchange Commission (SEC). The exchange also observed that the SEC’s complaint failed the Howey test.
The Mechanism of the Loan Process
It is important to note that Coinbase users can secure a loan by pledging their Bitcoin as collateral through the Coinbase app. Bitcoin is pledged, and it is subsequently converted to cbBTC at a 1:1 ratio and transferred to the Morpho DeFi protocol. In exchange, borrowers are granted immediate access to their funds by receiving USDC loans directly into their Coinbase accounts within seconds.
Furthermore, the procedure optimizes efficiency and guarantees user convenience. The entire transaction is completed on-chain, and Coinbase does not charge any fees for converting Bitcoin to cbBTC. The borrowed USDC can be used for various purposes, such as converting it into US dollars, transferring it, or incurring expenses.
Risk Management and Flexible Repayment Terms
One noteworthy attribute of Coinbase’s Bitcoin-backed loans is the absence of a predetermined repayment schedule. The debtors can repay the loans on their chosen schedule, provided the LTV ratio remains safe. The loan’s risk of liquidation is mitigated by the LTV ratio, which guarantees that the loan is adequately secured.
Nevertheless, if Bitcoin’s value decreases, the exchange will liquidate the collateral to cover the loan. This mechanism guarantees the loan’s security and enables the exchange to mitigate the risks associated with BTC volatility.
The Bitcoin-backed loan service offered by Coinbase is exclusively available in the United States, except in New York. Coinbase has implemented Bitcoin as its initial collateral; however, it intends to integrate additional digital currencies into subsequent iterations.
Furthermore, the cryptocurrency exchange has maintained the expansion of its product line, most recently incorporating the Peanut the Squirrel (PNUT) meme coin onto the Solana network. The trading pair PNUT-USD will be introduced to the exchange in phases. PNUT will become available for trading in January.
