LONDON, ENGLAND – NOVEMBER 09: In this photo illustration, a flipped version of the Coinbase logo is reflected in a mobile phone screen on November 09, 2021 in London, England. The cryptocurrency exchange platform is to release its quarterly earnings today. (Photo illustration by Leon Neal/Getty Images)
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Coinbase is once again offering Bitcoin-backed loans to its customers, which was previously shut down in July 2023. At that time, Coinbase blamed a lack of demand for closing the BTC loan service. However, now the company has again re-entered this space, offering the service through Morpho, a decentralized finance (DeFi) protocol built on Ethereum and Base.

With this reintroduced BTC-backed loan service, users can borrow up to $100,000 worth of USDC stablecoins using Bitcoin as collateral. USD Coin (USDC) is a stablecoin that is fully backed by U.S. dollars and dollar-denominated assets. While USDC is not issued by the government, its market cap grew from $24.4 billion in 2022 to $43.9 billion in 2024. This marks a 79% increase.

Notably, this time the scenario has changed, as Coinbase is trying to play it safer by using DeFi technology. Now users cannot lend money directly. In this new setup, Morpho’s system allows Coinbase to keep control of the program. Through this leverage, the company can avoid the unexpected nature of decentralized autonomous organizations (DAOs). Also, DeFi loans are generally overcollateralized, so borrowers don’t easily default on them.

On the other hand, previously Coinbase started a program that let users borrow up to $1 million against as much as 30% of their Bitcoin holdings. Back then, the company witnessed a legal setback as the US SEC filed a complaint accusing it of operating without proper registration/licensing.

Coming to availability, the new BTC-backed loan service is currently available to all US-based customers. However, New York is the exception because of regulatory restrictions.

Speaking of the fresh start, the service becomes more significant as Coinbase users have already been holding billions of dollars worth of Bitcoin in their wallets. So, this BTC loan service might potentially funnel a substantial amount into DeFi.

While this crypto-backed loan service is not a new concept, it allows people to use their crypto (in this case, ‘Bitcoin’) to avail quick funds without surrendering ownership of assets. But earlier in 2022, many multi-billion-dollar crypto lending firms went bankrupt. The list includes names like Celsius, Genesis, and BlockFi. That not only resulted in billions in losses but also the loss of users’ and investors’ confidence in the crypto lending idea.

But interestingly, in the last few months, the crypto market has witnessed a rapid surge (particularly Bitcoin), after President-elect Donald Trump’s victory in the elections. Translating Trump’s pro-crypto stance into hopes, BTC even surpassed $100,000 for the first time in December 2024.

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