Coinbase reintroduces DeFi-backed Bitcoin loans for users in the U.S.

Coinbase has introduced a borrowing function for Bitcoin holders on the exchange. The crypto exchange announced it was reintroducing a feature allowing users to borrow against their Bitcoin directly through the exchange.

Coinbase has expanded its operations by reintroducing a lending feature for its customers based in the United States, excluding those in New York. The exchange announced it was bringing back Bitcoin-backed loans, which had initially been eradicated back in 2023.

Coinbase users in the U.S. will now borrow against their Bitcoin holdings

Bitcoin-backed loans are here.

Borrow USDC against bitcoin, without selling it. Rolling out to US users (ex. NY) starting now. More collateral assets and regions to come. Powered by @MorphoLabs and built on @Base.

The future of finance is onchain.

Learn more:… pic.twitter.com/PoLdWLz6aV

— Coinbase 🛡️ (@coinbase) January 16, 2025

According to the exchange, the loans will be facilitated and processed by DeFi protocol Morpho, an Ethereum-based crypto lending and borrowing platform built on Base that currently boasts deposits worth close to $4 billion, according to data from DeFiLlama. The announcement explains that Coinbase will be handing out the loans in the form of Circle’s stablecoin USDC in as fast as less than a minute. 

The exchange also detailed that users who capitalize on this feature can earn more than 4% in USDC rewards, send the funds to other users worldwide, or use the USDC for on-chain activities. Users who receive their loans can also convert the USDC to fiat USD and use the funds to cater to their off-chain expenses, such as purchasing a car or paying a downpayment for a mortgage. 

The exchange urged users that the borrowing feature would allow U.S.-based users to legally delay their tax gains, which would otherwise be realized if they liquidated their holdings. 

Coinbase promises an improved lending feature than the one before

The exchange promised users that the new feature was improved and functions better than the old model. The co-founder and CEO of Morpho, Paul Frambot, said that his application’s customizability makes it the most suitable platform for Coinbase’s crypto-backed loans project. 

The executive also said that the DeFi lending and borrowing platform allows companies such as Coinbase to maintain absolute control over their assets and products and continue to innovate. He also emphasized the need to voluntarily cease centralization, control, and governance of third-party platforms such as Decentralized Autonomous Organizations (DAOs). 

Coinbase initiated a similar project allowing its customers to borrow up to $1 million against their crypto holdings, equivalent to 30% of their assets’ value. However, the exchange shut down the feature in July 2023 after a regulatory crackdown by the U.S. Securities and Exchange Commission (SEC). The financial regulator alleged that the exchange had begun operating as a brokerage, exchange, and clearing agency without regulatory approval.

Coinbase also published a list of disclaimers, including informing users that the product described is not offered on the grounds of a securities offering. The exchange also noted that Coinbase will update rates periodically after assessing the current rates. The exchange indicated that spread and processing fees from third-party providers will still apply when users convert their USDC into USD. 

Coinbase Bitcoin-backed loans will be issued in USDC on ten different blockchains

Coinbase also mentioned that USDC will be available natively in ten different blockchains, namely Ethereum, Base, Optimism, Polygon, Avalanche, Stellar, Algorand, Noble, Solana, and Arbitrum.

The integrated feature represents a remarkable transformation that unlocks more utility for the decentralized finance ecosystem. DeFi protocols running on networks like Ethereum have complex user interfaces, leading to low demand for decentralized financial activities. Coinbase intends to solve the challenge by offering a trusted intermediary platform for users to capitalize on overcollateralized lending from DeFi protocols.

Despite the reform marking a significant shift in DeFi functionalities, crypto lending and borrowing as a niche has a shady past. In 2022, the crypto winter saw several multi-billion dollar lending and borrowing platforms in DeFi collapse, causing billions of dollars in losses to investors, lenders, and borrowers. 

Platforms such as BlockFi, Genesis, and perhaps the most notable Celsius filed for bankruptcy, destroying the reputation of DeFi lending and borrowing and ultimately causing investors and users to flee from the idea.

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