Coinbase Introduces New Service Allowing US Customers to Borrow USD Coin (USDC) by Leveraging Their Bitcoin (BTC) as Collateral

This innovative feature, announced in a recent update, aims to provide users with quick and flexible access to funds without the necessity

Coinbase expands DeFi offerings with Bitcoin-backed USDC loans Coinbase users can now borrow USD Coin (USDC) against their Bitcoin (BTC) in a new service rolling out to US customers (except those in New York).

The new feature, announced in a recent update from the crypto exchange, is designed to give users quick and flexible access to funds without having to sell their Bitcoin.

Here's how the process works:

Coinbase users pledge their Bitcoin (BTC), which is then converted into cbBTC, a wrapped version of Bitcoin created by Coinbase for use in DeFi applications. This allows Bitcoin, which is normally unable to interact with DeFi protocols due to its technical framework, to be used in DeFi applications.

The cbBTC is then deposited into Morpho, a DeFi lending protocol built on Coinbase's Base blockchain. In return, borrowers will receive USDC, a stablecoin pegged to the US dollar, which they can use for a variety of purposes, such as covering expenses, making international transfers, or converting it back into USD.

The interest rates on these loans will be adjusted dynamically based on market activity on the Base blockchain, reflecting Coinbase's efforts to integrate DeFi with user needs.

This loan service comes at a time when the crypto lending sector has been under increased scrutiny following the high-profile bankruptcies of entities like Celsius and BlockFi in 2022, which significantly eroded trust in crypto lending.

Coinbase's integration with Morpho allows the exchange to act as an intermediary in a bid to restore some of that confidence, offering a lending experience that is transparent and driven by smart contracts.

There are no fixed repayment schedules, meaning that borrowers can repay the loan at their own pace, as long as the value of the Bitcoin collateral remains above a certain threshold relative to the loan amount.

However, if the value of Bitcoin drops significantly, the system will automatically liquidate enough collateral to cover the loan, ensuring the protocol remains solvent.

The benefits of crypto-backed loans such as these include the ability for users to avoid immediate capital gains taxes by borrowing against their assets instead of selling them, and the fact that these loans operate on blockchain technology, enabling transparent and efficient processes through automation.