Cryptocurrency exchange Coinbase is launching a Bitcoin backed loans service for its US-based customers. The new service allows users to borrow USDC/USD using their Bitcoin holdings as collateral.
According to an official blog post, the Bitcoin-backed loans service will enable users to access liquidity without necessarily selling their crypto holdings. Coinbase users will receive real-time loans with flexible payment terms alongside competitive interest rates powered by the exchange’s Layer-2 open-source lending platform, Morpho.
Coinbase Offers Dynamic Interest Rates
The company said users could borrow up to $100,000 in USDC based on their Bitcoin holdings. Once they borrow, the users’ Bitcoin holdings will be converted into Wrapped Bitcoin at a ratio of 1:1 and held as collateral by Morpho. The company stated:
“Getting a Bitcoin backed loan on Coinbase is now easier and faster than ever. In under a minute, you can get a loan in USDC without ever having to sell your bitcoin.”
Coinbase offered dynamic interest rates adjusted according to real-time market conditions. Since there is no predetermined repayment timetable, consumers can choose how to repay their loans and track their loan status through the Coinbase App. The exchange further revealed that loans would be subject to liquidation any time the loan amount and interest exceeded the value of the collateral.
Bitcoin Backed Loans are More Accessible
It will be remembered that the Bitcoin-backed loans service isn’t an entirely new offering since users who have been on the Base platform have long been borrowing USDC against their crypto on the Morpho platform or other decentralized finance (DeFi) offering. The best thing about the newly launched product is that it’s now more easily accessible through a newly introduced, easy-to-use interphase that has eliminated all former barriers to entry. Coinbase exchange head of consumer products Max Branzburg stated:
“This is a moment where we’re planting a flag that Coinbase is coming on-chain, and we’re bringing millions of users with their billions of dollars.”
Lenders Don’t Need Your Credit Score
Loans offered in the crypto space are fundamentally different from what most users are accustomed to in the traditional financial model operated by banks and other lending institutions. In conventional banking systems, lenders highly rely on a user’s credit score before deciding whether to lend them money and whether or not the loan will be secured.
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However, when it comes to crypto-backed loans, platforms like Morpho don’t need credit scores to guestimate how good a borrower is at repaying their loans. Instead, crypto-backed lenders require that a borrower posts an amount of crypto as collateral, mostly slightly higher than the amount they plan to borrow. This setup ensures the platform can recoup any bad loans from defaulters. Borrowers will need to post the collateral amount in Bitcoin as collateral, and Morpho could liquidate the collateral when the loan-to-value ratio goes high. Branzburg explained:
“If price swings are reaching any dangerous point, we will share liquidation warnings through the Coinbase app so that you’re aware of it and can act.”
Conclusion
Coinbase promotes borrowing rather than selling crypto assets by citing potential tax benefits in deferring capital gains and losses. By launching the loan service, Coinbase has shown its commitment to giving users greater control over their financial lives. The company is combining crypto’s accessibility and decentralized features to offer a product that aims to improve its financial services vastly.
Frequently Asked Questions (FAQs)
What are Bitcoin-backed loans?
Bitcoin-backed loans are a quick way for BTC holders to access denominated loans using their crypto as collateral.
Are there minimum amounts for a Bitcoin-backed loan?
Different providers offer varying amounts of Bitcoin-backed loans. However, the amount you can receive will be determined by the collateral you can raise in Bitcoin.
What currency can I use to get my loan?
The loans are usually funded in your local currency, USD or USDC. Nonetheless, loans are primarily denominated in USD.
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