Coinbase Launches Bitcoin-Backed Onchain Loans

Coinbase has launched Bitcoin-backed onchain loans through Morpho, a decentralized lending protocol on Ethereum and Base, an Ethereum Layer 2 network incubated by Coinbase.

Customers can borrow up to $100,000 in USDC (a stablecoin) using their Bitcoin holdings as collateral. This borrowing process works specifically on Base and Coinbase provides the interface to access it but does not manage the loans directly, as stated by a Coinbase spokesperson.

Max Branzburg, Coinbase’s VP of Product, described the integration as “TradFi in the front, DeFi in the back,” highlighting Coinbase’s dedication to bringing financial services onchain.

Bitcoin-Backed Onchain Loans

Earlier, Coinbase offered Bitcoin-backed loans through its Borrow program, which was discontinued in 2023 to focus on more in-demand products. The new loans through Morpho operate onchain, with Morpho being a top decentralized finance protocol holding $3.7 billion in total value locked, and having raised over $69 million from significant investors like a16z Crypto and Kraken Ventures.

When a customer opts for an onchain loan, their Bitcoin collateral is converted 1:1 into Coinbase-wrapped Bitcoin (cbBTC) without any charges. This cbBTC is then transferred to Morpho, which allocates 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%. Borrowers can choose their favorable loan-to-value (LTV) ratio above this threshold. Should the loan balance reach 86% of the collateral’s market value, liquidation occurs to repay the loan along with a penalty fee, with remaining Bitcoin returned to the user.

Interest Rates and Other Details

Interest rates are variable and change in response to market conditions, recalculated every few seconds as new blocks are created on the Base blockchain. The repayment schedule allows flexibility with no minimum payments or due dates, as long as borrowers maintain a healthy LTV ratio to avoid liquidation.

Currently, these Bitcoin-backed loans are only available in the United States (excluding New York), with plans for expansion into other markets. Coinbase also intends to support more collateral options beyond Bitcoin in the future.