Coinbase Partners with Morpho to Offer Bitcoin-Backed Loans

TLDR

• Coinbase will now allow for borrowing Bitcoin-backed loans on its centralized platform.
• The lending partner is Morpho, the biggest lender on the Base DeFi chain.
• This solidifies BTC and crypto in general as the future of finance.

Borrowing against BTC and doing so with just a few clicks used to be something reserved for DeFi. But now Coinbase is tapping into its Layer 2 Base to offer loans on its centralized exchange. 

Coinbase has partnered with Morpho, a decentralized lending platform, to launch Bitcoin-backed loans for U.S. users, except for one. Sorry, New Yorkers. This means you can now borrow up to $100,000 in USDC (that’s Coinbase’s stablecoin) without relying on credit scores — and all through Coinbase’s easy-to-use interface.

Here’s what you need to know about Coinbase’s latest venture into on-chain borrowing and how it could impact you. 

What’s the Deal With Bitcoin-Backed Loans? 

Borrowing money in traditional finance usually depends on your credit score — a measure determining whether you can be trusted to repay a loan. But in the crypto world? Forget credit scores. 

Platforms like Morpho make loans possible by requiring hefty collateral upfront in the form of Bitcoin or other tokens. To borrow $10,000 worth of USDC, you’ll need to post more than that value in Bitcoin as collateral. 

What’s groundbreaking here isn’t the concept of cryptocurrency-backed loans (these already exist on other DeFi platforms like Morpho or throughout Coinbase’s Base chain). 

The real game-changer is accessibility. Coinbase is integrating Morpho’s borrowing infrastructure directly into its app. That means even beginners in crypto, who are already familiar with Coinbase’s user-friendly platform, can explore these loans without wading through the complexities of DeFi setups. 

Why Would I Borrow When I Can Just Sell It?

Great question. And our question to you is, “Why would you ever sell your Bitcoin?” It’s going to continually gain in value as time goes on.

But the main reason is taxes. While this will differ from jurisdiction to jurisdiction, most people will have to pay income or personal gains taxes on a sale of their tokens. But a loan? You don’t pay taxes on the money you borrow.

So with this option, you keep your BTC and get USDC that you can pull off chain and spend it how you see fit.

Crypto loans also come in handy for traders pursuing advanced strategies, such as farming airdrops or leveraging trades. 

How Does It Work? 

Here’s a step-by-step overview of how these Bitcoin-backed loans function through Coinbase and Morpho:

 1. Collateral First 

You start by posting Bitcoin as collateral — this is like a security deposit you put upfront. The amount of BTC you post must exceed the value of the USDC you borrow. For example, if you want $10,000 USDC, you will need more than $10,000 worth of BTC as collateral due to the loan-to-value (LTV) ratio. The average LTV in DeFi for BTC is around 65% but that changes depending on how the market is doing.

2. Minting Wrapped Bitcoin 

When you post Bitcoin as collateral, it gets wrapped into something called “cbBTC” (Coinbase’s version of Bitcoin specifically used on the Base chain). Why? Because cbBTC is the wrapped BTC token that Coinbase uses for both Coinbase and Base. 

3. Then Comes the Borrowing 

Once your collateral is secured, you’re able to borrow up to $100,000 in USDC. It’s worth noting that the entire process is frictionless and happens directly within Coinbase’s app. No external wallets or complicated steps. 

4. Keep an Eye on Liquidation 

Here’s where things get cautious. Or fun. Depending on how you look at it. If the value of your BTC collateral drops too much relative to your USDC loan, Coinbase will begin liquidating some of that collateral to keep things balanced. But don’t worry — the Coinbase app will send you ample warnings so you’re aware and can take action before it’s too late. 

5. Use Your Loan 

Once you’ve successfully borrowed USDC, you can use it for various purposes. Whether you’re funding a big purchase, like a car, or dabbling in crypto farming and trading strategies, the choice is yours. 

Is It Right for You? 

If you’re holding on to Bitcoin and need liquidity without letting go of your crypto, Coinbase’s Bitcoin-backed loans could be a suitable option. It simplifies the process of accessing DeFi-like loans through a beginner-friendly platform while allowing you to keep your BTC in play for future gains. 

However, keep in mind:

• You’ll always risk liquidation if your loan-to-value ratio becomes unfavorable. 
• The collateral requirements mean you’ll need significant crypto holdings to make it worthwhile. 
• Interest rates and terms will be variable, so it’s important to compare with other options available in the market. 

Why This Move Is the Future of Finance 

Coinbase’s partnership with Morpho is a step toward making crypto-backed financial services accessible to everyone. By merging DeFi functionality with a highly intuitive user interface, Coinbase is lowering the barriers to entry into crypto lending. 

Whether you see it as a strategic crypto move or a step closer to mainstream adoption, Bitcoin-backed loans are now a prominent feature in Coinbase’s product lineup. If you’ve been considering leveraging your Bitcoin to access liquidity, this addition might make it easier than you imagined.

No more underwriters. Not more getting turned down for loans. If you have assets, you can get cash when you need it.