A quiet milestone passed this week, one that speaks volumes about how quickly the crypto economy is growing. Coinbase, the major crypto exchange, announced it had topped $1 billion in bitcoin-backed onchain loan originations. This isn’t just a big number. It’s a signal, arriving just eight months after the service first launched in January.
- Coinbase has achieved over $1 billion in bitcoin-backed onchain loan originations within eight months of launching the service. This rapid growth highlights the increasing adoption of decentralized finance tools, even through centralized platforms.
- The service allows users to borrow USDC stablecoins using their bitcoin as collateral without selling their crypto, thus avoiding taxable events. Loan limits have significantly increased, now reaching up to $5 million against bitcoin collateral.
- The onchain loan mechanism utilizes Morpho, a DeFi protocol, and converts bitcoin to Coinbase-wrapped bitcoin (cbBTC) for collateral. The loans are over-collateralized and feature dynamic interest rates and flexible repayment terms, with automatic liquidation if the loan-to-value ratio reaches 86%.
Think about that for a moment. A billion dollars in less than a year. It’s the kind of growth chart that makes product managers everywhere nod approvingly. Coinbase CEO Brian Armstrong certainly did. He took to X, formerly Twitter, to celebrate the achievement.
Next goal: $100B in onchain borrow originations.
These adoption charts are what every product manager wants to see: hockey stick growth.
The onchain economy is thriving. pic.twitter.com/210s89w89K
— Brian Armstrong 🛡️ (@brian_armstrong) September 10, 2024
Armstrong didn’t just celebrate. He set the next target: $100 billion. That’s a bold jump, but it shows the ambition behind these onchain services. He called the growth “hockey stick” shaped, a clear sign of rapid adoption.
This particular loan service works with Morpho, a decentralized finance (DeFi) protocol. Morpho happens to be a project in Coinbase Ventures’ portfolio. The idea is simple enough: you use your bitcoin as collateral to get a loan in USDC, a stablecoin. The real trick? You don’t have to sell your bitcoin. This means you avoid a taxable event, which is a big deal for many crypto holders.
Max Branzburg, Coinbase VP of Product, summed it up nicely when the service began. He called it “TradFi in the front, DeFi in the back.” It’s a neat way of saying it feels familiar to traditional finance users, but all the heavy lifting happens on the blockchain, out of sight.
The service started with a loan limit of $100,000. That quickly changed. By April, after generating $130 million in loans, the limit jumped to $1 million. And just this week, Coinbase announced another increase. You can now get up to $5 million in USDC against your bitcoin.
This rapid scaling isn’t accidental. It reflects a clear demand. Coinbase itself posted on X, “The onchain economy is growing, so we’re growing with it.” They see the trend, and they’re riding the wave.
The onchain economy is growing, so we're growing with it.
Loan limits are increasing — get up to $5M in USDC against your bitcoin. Rolling out soon. pic.twitter.com/rK5n7e0K9G
— Coinbase 🛡️ (@coinbase) September 10, 2024
It’s worth noting that Coinbase had a different bitcoin-backed loan program before. That one was for retail customers and it ended in November 2023. That shutdown came amidst legal challenges with the Securities and Exchange Commission (SEC) under the Biden administration. This new service is structured differently. Coinbase acts as an interface. The actual loan management happens on Morpho, running on Ethereum’s Layer 2 network, Base. This distinction is key, as it changes Coinbase’s direct role in the loan process.
How the Onchain Loans Work
So, how does this all function? When a Coinbase customer decides to take an onchain loan, their bitcoin isn’t sent directly to Morpho. Instead, it’s converted 1:1 into Coinbase-wrapped bitcoin, or cbBTC. There’s no fee for this conversion. This cbBTC is then transferred to the Morpho protocol.
Once Morpho receives the cbBTC, it disburses the USDC loan. That USDC then lands directly in the customer’s Coinbase account. It’s a smooth process, designed to keep things simple for the user while the blockchain handles the behind-the-scenes work.
These loans are over-collateralized. What does that mean? You need to put up more value in bitcoin than the loan you receive. The minimum collateral ratio is 133%. So, if you want to borrow $100, you need to provide at least $133 worth of bitcoin. Borrowers can choose to put up even more collateral if they prefer, giving them a lower loan-to-value (LTV) ratio.
There’s a safety mechanism in place, too. If the loan balance starts to climb and reaches 86% of the collateral’s market value, the position is automatically liquidated. This means the collateral is sold to repay the debt and cover any penalty fees. It’s a way to protect both the borrower and the system from significant losses if the bitcoin price drops sharply.
The interest rates on these loans are not fixed. They adjust automatically with each new block on the Base network. This dynamic pricing reflects the current supply and demand for lending and borrowing. Repayment, however, is quite flexible. There are no minimum payments or strict deadlines, as long as you keep your LTV healthy. This offers a lot of freedom for borrowers.
Looking Ahead
Right now, bitcoin is the only cryptocurrency you can use as collateral for this service. But Coinbase has hinted at supporting more digital assets in the future. This would open up the service to a wider range of crypto holders, making it even more versatile.
The service is currently available to users in the United States, with one exception: residents of New York. Regulatory environments vary from state to state, and New York often has its own specific rules for crypto activities.
In a related move, Coinbase also rolled out another feature earlier in September. This allows users to lend their USDC onchain. It offers yields that can go as high as 10.8%. This shows a broader push by Coinbase to build out its onchain offerings, moving beyond just trading to include more financial services directly on the blockchain.
The rapid adoption of these onchain loans suggests a growing comfort with decentralized finance tools, even when accessed through a centralized exchange. It’s a fascinating blend of old and new, and it leaves us wondering what other innovations might be just around the corner.
