Coinbase introduces USD Coin (USDC) loans using Bitcoin as collateral
Coinbase introduced USDC lending with Bitcoin as collateral. The loans are available to US customers. The loans have no fixed fee and are automatically adjusted based on activity on the Base.
In a move to expand its decentralized finance (DeFi) offerings, Coinbase has introduced a novel service that allows its US customers (except those in New York) to borrow US dollar coins (USDC) using Bitcoin (BTC) as collateral.
This innovative feature, unveiled in a recent update, aims to provide users with quick and flexible access to funds without having to sell bitcoins.
The process uses Coinbase's cbBTC stablecoin
Users pledge Bitcoin (BTC), which turns into cbBTC, a mined version of Bitcoin specifically designed by Coinbase for use in DeFi applications. This conversion allows Bitcoin, which normally operates outside the DeFi ecosystem due to its technical framework, to seamlessly integrate with DeFi protocols.
CBBTC was then ported to Morpho, a DeFi lending protocol built on Coinbase's Base blockchain. In return, borrowers receive USDC, a stable coin pegged to the US dollar, which can be used for various purposes such as covering expenses, making international transfers or converting to US dollars.
The interest rates on these loans are dynamically adjusted based on market activity on the Base blockchain, reflecting Coinbase's commitment to aligning DeFi with user needs.
Notably, this lending service comes at a time when the crypto lending sector is under scrutiny following the bankruptcy of high-profile entities such as Celsius and BlockFi in 2022, which has severely undermined confidence in crypto lending.
By integrating with Morpho, Coinbase is stepping in as a middleman to restore some confidence, offering a transparent, smart contract-based lending experience.
There is no fixed payment period.
What sets this service apart is the lack of fixed payment schedules. Borrowers are free to repay the loan at their own pace as long as the value of the Bitcoin collateral remains above a certain threshold relative to the loan amount.
However, if the price of Bitcoin starts to decline, the system is designed to automatically inject enough collateral to cover the loan, while maintaining the integrity of the protocol.
The benefits of such crypto-backed loans are many. First, it allows consumers to bypass immediate capital gains taxes by borrowing against their assets rather than selling them. Moreover, these loans work on blockchain technology, ensuring transparency and efficiency through automated processes.
