Coinbase has introduced USDC loans backed by Bitcoin. This loan is available to US customers. The loan has no fixed repayments and automatically adjusts based on your activity at Base.
As part of expanding its decentralized finance (DeFi) services, Coinbase will allow US customers (excluding New York residents) to borrow USD Coin (USDC) using Bitcoin (BTC) as collateral. Introduced a new service.
Announced in a recent update, this innovative feature aims to give users quick and flexible access to their funds without having to sell their Bitcoins.
This process utilizes Coinbase's cbBTC stablecoin.
Users pledge their Bitcoin (BTC) and it is converted into CBBTC. cbBTC is a wrapped version of Bitcoin specifically designed by Coinbase for use in DeFi applications. This transformation allows Bitcoin, which typically operates outside the DeFi ecosystem, to interact seamlessly with DeFi protocols due to its technical framework.
The cbBTC is then sent to Morpho, a DeFi lending protocol built on Coinbase’s Base blockchain. In return, borrowers receive USDC, a stablecoin pegged to the US dollar, which can be used for a variety of purposes, including covering expenses, sending money internationally, and converting to US dollars.
Interest rates on these loans will dynamically adjust based on market activity on the Base blockchain, reflecting Coinbase’s commitment to aligning DeFi to the needs of its users.
Notably, this loan service comes at a time when the cryptocurrency lending sector has come under intense scrutiny following the bankruptcy of high-profile companies such as Celsius and BlockFi in 2022, significantly reducing confidence in cryptocurrency lending. It was offered within.
By integrating with Morpho, Coinbase could step in as an intermediary, provide a transparent and smart contract-based lending experience, and potentially restore some trust.
There is no fixed repayment deadline
A distinctive feature of this service is that there is no fixed repayment schedule. Borrowers have the freedom to repay the loan at their own pace, as long as the value of the Bitcoin collateral exceeds a certain threshold relative to the loan amount.
However, if Bitcoin's value plummets, the system is designed to automatically liquidate enough collateral to cover the loan and protect the integrity of the protocol.
The benefits of such crypto-backed loans are wide-ranging. One is to allow users to avoid capital gains taxes for the time being by borrowing rather than selling assets. Furthermore, these loans are operated based on blockchain technology, ensuring transparency and efficiency through automated processes.
