Coinbase has introduced a new Bitcoin-backed loan service, allowing users to borrow up to $100,000 in USDC without needing to sell their Bitcoin. The service leverages the Morpho DeFi protocol and Coinbase’s Ethereum Layer 2 solution, Base, to offer this feature to U.S. customers (excluding those in New York).
Key Features of Coinbase’s Bitcoin-Backed Loans:
Loan Process: Users can pledge their Bitcoin as collateral, which is converted into cbBTC (a wrapped version of Bitcoin) at a 1:1 ratio. The cbBTC is then transferred to the Morpho DeFi protocol, enabling the issuance of USDC loans directly into the user’s Coinbase account within seconds.
No Fixed Repayment Schedule: One of the notable features of this service is that borrowers don’t have a fixed repayment schedule. Users can repay the loan at their own pace as long as the loan-to-value (LTV) ratio remains safe. If Bitcoin’s price drops and the collateral becomes insufficient, the loan may be liquidated to cover the debt.
Decentralized Finance Integration: By converting Bitcoin into cbBTC, Coinbase integrates its services with decentralized finance systems through the Morpho protocol. This setup allows users to access liquidity while keeping their Bitcoin holdings intact.
Risk Management and Liquidation:
While there is flexibility in repayment terms, users must be mindful of Bitcoin’s price fluctuations. If Bitcoin’s value falls too much, the collateral may be liquidated to ensure the loan is secured. This feature aims to mitigate the risks associated with Bitcoin’s volatility, offering an added layer of protection for both the borrower and Coinbase.
Availability and Future Plans:
The service is currently available to U.S. residents, excluding those in New York, with plans for potential expansion to other markets.
For now, Bitcoin is the only collateral accepted, but Coinbase intends to incorporate other digital assets in future versions of the service.
Additional Developments:
In addition to the Bitcoin-backed loan service, Coinbase has also expanded its offerings by adding the Peanut the Squirrel (PNUT) meme coin on the Solana network, with trading to begin in January.
Conclusion:
Coinbase’s new Bitcoin-backed loan service provides users with the opportunity to access liquidity without selling their Bitcoin, leveraging the power of decentralized finance. The flexible repayment structure and integration with the Morpho protocol make it an attractive option for Bitcoin holders in the U.S. However, borrowers must remain aware of the risks tied to Bitcoin’s price volatility.
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