Coinbase announced a partnership with money market Morpho on Jan. 16 to offer on-chain USD Coin (USDC) loans backed by Bitcoin (BTC), according to a Jan. 16 release.
The service will allow Coinbase users to borrow USDC by pledging Bitcoin as collateral. Loans are processed through the layer-2 blockchain Base. The collateral is automatically converted to Coinbase Wrapped Bitcoin (cbBTC) on a 1:1 basis and then transferred to Morpho.
Borrowers can access up to $100,000 in USDC, with interest rates determined dynamically by Morpho’s market-driven mechanism.
On-chain loans offer flexibility with no fixed repayment schedule, but users must monitor their loan-to-value ratio to avoid liquidation if the collateral’s value drops.
Morpho is now the 12th-largest decentralized application by total value locked, reaching over $3.2 billion in 2024 with a 444% growth, according to DefiLlama data.
DeFi expansion
Coinbase’s initiative reflects the importance of decentralized finance (DeFi) tools to the firm’s expansion plans.
In the announcement, the exchange framed the new service as a step toward bringing traditional financial tools into the crypto market. Users can convert borrowed USDC to US dollars for free.
The service is also positioned as a tax-efficient alternative to selling Bitcoin, potentially enabling users to defer capital gains or losses. This aspect may appeal to investors seeking to unlock liquidity without triggering taxable events.
This move follows Coinbase’s September launch of cbBTC, which allowed customers to move Bitcoin into on-chain environments.
According to a Dune Analytics dashboard created user eekeyguy, cbBTC has surpassed $2.1 billion in supply since its launch, equivalent to 21,495.46 BTC. Meanwhile, Wrapped Bitcoin (WBTC) fell 13.4% in supply over the same period, although its market size is over 132,000 BTC.
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