Coinbase has reintroduced its Bitcoin-backed loan program, allowing U.S. users to borrow up to $100K in USDC, offering a fresh boost to crypto liquidity and DeFi adoption.
On January 16, 2025, Coinbase relaunched its Bitcoin-backed loan service for U.S. users, offering an updated borrowing experience. This marks the return of the service, which was previously discontinued in mid-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.
Background on Suspension The Bitcoin-backed loan program was initially paused in July 2023. At the time, customers could borrow up to $1 million using their Bitcoin as collateral through the Coinbase Borrow Program. However, regulatory challenges, particularly a complaint from the U.S. Securities and Exchange Commission (SEC), led to the suspension. The SEC alleged that Coinbase operated as an unlicensed broker, exchange, and clearing agency.
What’s New in the Relaunched Program The revamped program comes with significant changes. Firstly, the maximum loan amount has been reduced to $100,000. Secondly, Coinbase has partnered with Morpho, an open-source lending protocol, to enhance the service.
Under the new setup, users can borrow USDC by pledging their Bitcoin. Coinbase converts the pledged Bitcoin into Coinbase Wrapped Bitcoin (cbBTC). Morpho then uses the cbBTC in its lending pools to provide borrowers with competitive interest rates that adjust based on market conditions.
Impact on the Cryptocurrency Market This move is expected to bring decentralized finance (DeFi) closer to mainstream audiences. By integrating with Morpho, Coinbase showcases the potential of DeFi protocols, potentially encouraging other major exchanges to adopt similar services.
For users, the ability to borrow against Bitcoin without selling it could help maintain market stability and offer liquidity. Additionally, this approach allows users to defer capital gains taxes. However, the risks of market volatility mean that collateral values could drop, leading to liquidation.
DeFi protocols also carry inherent risks, such as vulnerabilities in smart contracts, which could lead to exploits or failures.
The Path Ahead If Coinbase successfully manages these risks and adheres to regulatory requirements, the reintroduction of Bitcoin-backed loans could set a strong precedent for the broader adoption of DeFi solutions. As the program evolves, it may reshape how crypto users access liquidity while retaining ownership of their assets.
(@coinbase) January 16, 2025
