Coinbase introduces DeFi-supported Bitcoin loans for US customers, claiming significant improvements this time
Coinbase reintroduces Bitcoin loans for US users, facilitated by DeFi lender Morpho. The previous crypto-backed loans programme was discontinued in 2023.
Users on Coinbase can now borrow against their Bitcoin directly through the exchange. These new crypto-backed loans are currently available to US customers, excluding New York state, with plans to expand to additional jurisdictions in the future.
Crypto lending has had a turbulent history, with major firms going bankrupt during the crypto winter of 2022, resulting in significant losses. However, Coinbase assures that these new loans are distinct from past offerings.
Instead of directly facilitating the loans, Coinbase acts as the intermediary, with Morpho, a DeFi lending protocol boasting $3.7 billion in deposits, powering the operation.
Morpho, the DeFi lender, has accumulated $3.7 billion in deposits.
Paul Frambot, CEO and co-founder of Morpho, highlighted the platform’s customizability as a factor in its suitability for Coinbase’s crypto-backed loans. He emphasized that Morpho empowers companies like Coinbase to maintain control over their products without relying on third parties.
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Second Time Around
This isn’t Coinbase’s first venture into offering loans against crypto assets. The platform previously allowed customers to borrow up to $1 million against a portion of their Bitcoin holdings.
However, in July 2023, Coinbase officially discontinued the programme following an SEC complaint alleging that it operated as an unregistered broker, exchange, and clearing agency. A Coinbase spokesperson cited reduced demand as a reason for discontinuing the Coinbase Borrow service.
The DeFi Transition
The collaboration between Coinbase and DeFi signals a significant merger between consumer-facing platforms and the complex world of decentralized finance. Coinbase now offers users access to popular DeFi services, like overcollateralized lending, without needing to manage their crypto assets directly or interact directly with the protocols.
With its users holding substantial amounts of Bitcoin, these new crypto-backed loans could inject a sizeable sum into DeFi. This concept of simplifying the technical aspects of DeFi while providing a user-friendly interface is often referred to as the “DeFi mullet.”
Understanding DeFi Loans
DeFi loans operate on an overcollateralization model without traditional credit scores. Borrowers deposit collateral to a lending protocol and borrow another asset at an interest rate based on demand.
When users borrow USDC against Bitcoin on Coinbase, their collateral is automatically converted to cbBTC and transferred to the Morpho protocol. CbBTC is a DeFi-compatible version of Bitcoin backed by Coinbase-held coins.
Because DeFi loans are overcollateralized, borrowers don’t default, but their collateral can be liquidated if its value drops or interest rates rise. Coinbase covers network fees but doesn’t protect users from liquidation or variable interest rates.
Tim Craig, DL News’ DeFi Correspondent based in Edinburgh, can be reached for tips at tim@dlnews.com.
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