Coinbase launches Bitcoin-backed onchain loans via DeFi protocol Morpho

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

Customers can borrow up to $100,000 in the USDC stablecoin using their bitcoin holdings on Coinbase as collateral, the company said Thursday. The borrowing process is facilitated by Morpho specifically on Base (not on Ethereum), with Coinbase providing an interface to access the protocol but not directly managing the loans, a Coinbase spokesperson told The Block.

"The integration of Bitcoin-backed loans on Coinbase is 'TradFi in the front, DeFi in the back,'" said Max Branzburg, Coinbase's vice president of product, in a statement to The Block. "This offering exemplifies Coinbase's continued commitment to bringing our customers' financial lives onchain."

Bitcoin-backed onchain loans

Coinbase previously offered bitcoin-backed loans through its Borrow program, which was discontinued for retail users in 2023 to focus on products with higher demand.

The new offering, enabled through Morpho, operates onchain. Morpho is one of the top decentralized finance protocols, with $3.7 billion in total value locked, according to DefiLlama. Morpho has raised over $69 million in total funding from prominent investors, including a16z Crypto, Ribbit Capital, Pantera Capital, Brevan Howard, Coinbase Ventures and Kraken Ventures.

When a Coinbase customer opts for an on-chain loan, their bitcoin collateral is converted 1:1 into Coinbase-wrapped bitcoin (cbBTC) at no cost and transferred to Morpho. The DeFi protocol then disburses the USDC loan to the customer's Coinbase account "in under a minute."

The Coinbase spokesperson said these loans are over-collateralized, requiring a minimum collateral ratio of 133%. Borrowers can choose their preferred loan-to-value (LTV) ratio above that threshold.

If the loan balance reaches 86% of the collateral's market value, the collateral is liquidated to repay the loan and cover a penalty fee, Coinbase said in an FAQ document shared with The Block. Any remaining bitcoin is returned to the customer's Coinbase account after the necessary liquidation. "Be sure to monitor your loan status regularly, as Coinbase cannot prevent collateral liquidation on Morpho," the company warned in the FAQ section.

Interest rates and other details

Interest rates for the onchain loans are variable and determined automatically by Morpho based on market conditions and they vary every few seconds with each block creation on the Base blockchain.

The repayment schedule is flexible, with no minimum payments or due dates, the spokesperson said. Borrowers can repay at their own pace, provided they maintain a healthy LTV ratio to avoid liquidation.

At launch, Coinbase's Bitcoin-backed loans are available in the United States, excluding New York, with plans to expand into additional markets. While Bitcoin is currently the only collateral option, Coinbase aims to support more tokens in the future.