Coinbase has rolled out Bitcoin-backed loans, allowing U.S. users excluding New York to borrow up to $1 million in USDC using Bitcoin as collateral. The service, launched in partnership with Morpho Labs on Coinbase’s Base blockchain, initially capped loans at $100,000 in January 2025 but expanded to $1 million by April 30, 2025.
Users’ Bitcoin is converted to Coinbase Wrapped Bitcoin (cbBTC) and held in a Morpho smart contract. Loans have no fixed repayment schedule, with variable interest rates starting as low as 5%, set by Morpho’s open market.
Borrowers must maintain a loan-to-value (LTV) ratio below 86% to avoid liquidation, which incurs a penalty fee. The program has seen over $130 million in loan originations backed by $227 million in collateral. Coinbase plans to support more collateral assets and expand globally.
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Offering loans backed by Bitcoin makes it easier for holders to access liquidity without selling their assets, encouraging long-term holding and mainstream use of crypto as collateral. This could drive broader adoption, especially among high-net-worth individuals.
DeFi-Blockchain Integration: Built on Coinbase’s Base blockchain with Morpho Labs, the service bridges centralized finance (CeFi) and decentralized finance (DeFi). It leverages DeFi’s transparency and smart contracts while maintaining Coinbase’s user-friendly interface, potentially attracting traditional finance users to DeFi ecosystems.
The variable interest rates (starting at 5%) and 86% LTV threshold mean borrowers face risks from Bitcoin’s price volatility. Sharp price drops could trigger liquidations, leading to losses (including penalty fees), which may deter risk-averse users or create market instability during downturns. Coinbase’s move intensifies competition with platforms like BlockFi, Ledn, or Aave, which offer similar crypto-backed lending. This could lead to better rates and terms for users but may pressure smaller players or force innovation across the sector.
Operating in the U.S. excluding New York highlights ongoing regulatory challenges. The exclusion of New York suggests compliance hurdles with state-specific laws like the BitLicense. As loan volumes grow, regulators may impose stricter oversight on crypto lending, especially concerning consumer protection and systemic risks.
With over $130 million in loans and $227 million in collateral already, the program could stimulate economic activity by unlocking capital for borrowers. However, it also raises concerns about over-leveraging in a volatile market, potentially amplifying financial risks. Coinbase’s plan to support more assets and expand globally could position it as a leader in crypto lending, but it will need to navigate diverse regulatory frameworks, which may delay or complicate rollout in some regions.
This move strengthens Coinbase’s position in crypto finance, promotes Bitcoin’s utility, and accelerates CeFi-DeFi convergence, but it also introduces risks tied to market volatility and regulatory uncertainty. Coinbase’s Bitcoin-backed loans, built on the Base blockchain with Morpho Labs, merge the accessibility of centralized platforms with DeFi’s decentralized infrastructure. Users get a familiar Coinbase interface while interacting with smart contracts and variable-rate lending markets.
This reduces the technical barrier for TradFi users entering DeFi, narrowing the gap between the two systems. However, it also highlights a divide: DeFi purists may criticize Coinbase’s custodial role (e.g., converting BTC to cbBTC), seeing it as less decentralized than native DeFi protocols like Aave. The program could pull TradFi users toward DeFi but risks alienating those who prioritize full decentralization, reinforcing a philosophical divide in the crypto community.
Loans up to $1 million democratize access to liquidity for Bitcoin holders, allowing them to leverage assets without selling. However, the service is limited to U.S. users excluding New York with significant Bitcoin holdings, as collateral requirements favor wealthier individuals. This widens the socioeconomic divide. High-net-worth individuals or crypto whales benefit most, while smaller retail investors with limited Bitcoin may find the collateral thresholds or liquidation risks prohibitive. The exclusion of New York further underscores regional disparities in access.
While the program promotes financial inclusion for some, it primarily serves those already crypto-wealthy, deepening the divide between crypto haves and have-nots. The program’s U.S.-only rollout excluding New York reflects varying regulatory environments. New York’s strict crypto regulations (e.g., BitLicense) create barriers that other states don’t face, and global expansion will encounter further regulatory hurdles.
This creates a geographic divide in access to innovative financial products. Users in permissive regions benefit, while others are excluded, potentially pushing them to unregulated or riskier platforms. Regulatory fragmentation could slow the global adoption of crypto lending, entrenching a divide between jurisdictions with progressive versus restrictive policies.
The loans involve complex mechanics—variable interest rates, LTV ratios, and liquidation risks tied to Bitcoin’s volatility. Sophisticated users familiar with crypto markets are better equipped to navigate these risks than newcomers. This exacerbates the knowledge divide. Experienced crypto users can optimize borrowing strategies, while less-informed users risk losses from liquidations or mismanaged loans, discouraging participation.
Without robust education efforts, the program may widen the gap between crypto-savvy and novice users, limiting its mass-market appeal. Coinbase’s entry into large-scale crypto lending strengthens its dominance in the crypto ecosystem, competing with DeFi protocols and smaller CeFi platforms. Its infrastructure and brand give it an edge over less-established players.
This widens the divide between large centralized exchanges and smaller DeFi or CeFi platforms. Smaller protocols may struggle to match Coinbase’s scale, user base, or marketing, consolidating market power. While users benefit from Coinbase’s reliability, reduced competition could stifle innovation or lead to higher fees over time, affecting the broader ecosystem.
Coinbase’s Bitcoin-backed loans highlight and, in some ways, deepen divides in the crypto and financial worlds: between TradFi and DeFi, wealthy and retail users, permissive and restrictive jurisdictions, knowledgeable and novice participants, and large platforms versus smaller competitors. While the program bridges some gaps (e.g., TradFi-DeFi integration), it also reinforces inequalities in access, risk exposure, and market influence.
To mitigate these divides, Coinbase could prioritize broader geographic access, lower collateral thresholds, user education, and partnerships with smaller DeFi protocols, but regulatory and market dynamics will continue to shape the extent of these divides.