Coinbase Unveils Bitcoin-Backed Loans: Borrow Cash Without Credit Scores!

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What to know:

  • Crypto exchange Coinbase is adding bitcoin-backed loans to its U.S. product offerings through the Morpho platform.
  • Borrowers will post sizable amounts of collateral rather than rely on their credit score for access.
  • The new setup feeds the Coinbase flywheel at every step.

Coinbase, through its COIN stock, plans to incorporate Bitcoin-collateralized loans into its American product portfolio. They’re relying heavily on Morpho, their largest lending partner within the Coinbase network, to attract more users and increase financial activity in their expanding digital currency economy.

The lending product isn’t entirely novel; users who are accustomed to Base have had the ability to obtain USDC by pledging their bitcoin on Morpho or through other DeFi services for some time now. However, what sets this apart is the ease of access: Coinbase is integrating Morpho’s borrowing mechanism into its own well-liked user interface, thereby eliminating a significant hurdle that previously prevented many users from participating.

In this critical juncture, Max Branzburg, the leader of Consumer Products at Coinbase, declared that they are firmly establishing Coinbase as a part of blockchain technology, and with them, they will bring millions of users and their combined billions of dollars.

In the digital, blockchain-based financial system, personal loans function significantly differently compared to traditional bank and lender loans. Conventional institutions typically assess creditworthiness through a borrower’s credit score before approving and setting terms for a loan, regardless of whether it is secured or unsecured.

In the realm of cryptocurrencies, unlike traditional finance, credit scores aren’t a factor. Instead, platforms like Morpho ensure security by requiring borrowers to pledge a substantial amount of collateral – significantly more than the amount they wish to borrow. This strategy serves as a safeguard, shielding the platform from shouldering bad debts from defaulting parties. I, as a researcher, find this approach intriguing as it eliminates the uncertainty associated with creditworthiness assessments.

With Coinbase, each loan is limited to $100,000 in USDC. To secure this amount, customers must pledge more than that value in bitcoin as collateral. If the value of the loan relative to the collateral (loan-to-value ratio) gets too high, Morpho will begin selling off the pledged bitcoin as a precaution.

In case price fluctuations become potentially risky, we’ll alert you via the Coinbase app about potential liquidations, giving you a heads-up to take appropriate action if needed.

At the heart of all financial services is the concept of lending money, but it holds a particular charm for crypto traders who tend to hold large amounts of tokens without immediate plans to sell. These traders often resort to loans to participate in airdrops and engage in other high-risk trades. Coinbase believes that loans facilitated by Morpho could enable borrowers to engage in more virtuous activities, such as purchasing a vehicle or paying for a home.

Beneath the surface, the latest setup continually fuels Coinbase’s operation at each stage. Initially, the introduction expands the capabilities of Coinbase’s user interface. Subsequently, users depositing Bitcoin as collateral are creating cbBTC (Coinbase’s Bitcoin equivalent) and obtaining USDC (Coinbase’s stablecoin). This entire process takes place on Morpho (a platform developed by Coinbase for lending), which runs on Base (Coinbase’s Layer 2 network).

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2025-01-16 17:32