Coinbase innovates by offering loans backed by bitcoins
The cryptocurrency trading platform announced the launch of USDC bitcoin-based borrowings. To do this, Coinbase has partnered with Morpho, a DeFi protocol for borrowing and lending cryptocurrency on the blockchain. Users of the platform will therefore have access to a new source of financing that moves away from the services offered by traditional banks.
FACTS
The Coinbase platform announced the launch of a new form of USDC (USD Coin) loan guaranteed by bitcoin.
For this, it has partnered with Morpho, a loan protocol running on the blockchain that will be accessible from the platform's Base network.
To make a loan, the user will go through Coinbase and deposit his bitcoins in exchange for the equivalent amount in USDC. It will then be able to use its USDC as it wishes, i.e. by using it on the blockchain or converting it into USD.
Specifically, the loan is contracted as follows:
The user connects to the Coinbase app and indicates the amount in USDC he wants to borrow against his bitcoin equivalent(s).
Once the loan has been validated, Bitcoins committed as collateral are converted into cbBTC and transferred on-chain to a Morpho smart contract.
Morpho then makes the payment in USDC, directly into the user's Coinbase account.
Interest rates, which should be competitive according to the platform, are calculated continuously by Morpho and evolve according to block validation.
With regard to repayment, no date is fixed and the borrower decides when to repay the loan. However, if the cumulative amount of the loan and interest exceeds a certain limit of the security deposit, liquidations are carried out by the platform.
In addition, the maximum amount of borrowing is USD 100,000 and functionality will only be offered in the United States.
ISSUES
Competition for traditional players: Coinbase's announcement recalls that the possibilities are multiple on the blockchain and that ecosystem dynamics favour the development of many cases of use. Traditional banks, already competing with fintechs and neo-banks in the provision of banking products to individuals, could also be threatened by the development of financial services from blockchain networks.
DeFi development: Borrowing guaranteed by bitcoin is an interesting way to enjoy the value of the famous cryptocurrency, without having to sell it. While cryptoactives are now considered to be the main means of investing, Coinbase shows that they can also be useful in more concrete cases of use without neglecting this investment logic. The development of such blockchain-based services will ultimately increase the public interest in decentralized finance and the benefits it can offer individuals in managing their finances.
PERSPECTIVE
This announcement is good news for Coinbase who had already tried to launch a similar project in 2021, called Coinbase Lend. The SEC (Securities and Exchange Commission) in the United States was opposed at the time.
The platform remains a pioneer in technology innovation: in 2023, for example, it launched an offer from Wallet-as-a-Service to democratize access to the Web3 for businesses and their customers.
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