Cryptocurrency exchange Coinbase has just introduced an interesting feature that allows users to obtain liquidity without having to sell their Bitcoin.
Going forward, US-based users can request loans of up to $100,000 by pledging their Bitcoin as collateral through the Morpho Labs vault.
The stablecoin can then be easily converted into US dollars, so you can cover expenses like buying a car or a down payment on a mortgage.
The advantages of this practice are numerous, but be careful because there are also significant risks that cannot be underestimated, especially in a volatile market situation.
Let’s see all the details below.
Coinbase launches USDC collateralized loans through Morpho Labs
Popular cryptocurrency exchange Coinbase has introduced a new financial service that allows users to access on-chain loans in stablecoins.
As is the case with A Banka Traditionally, Coinbase customers can now also freely borrow funds and use them for real-world expenses.
This feature was launched in collaboration with Morpho Labs, a decentralized lending protocol built on top of blockchain.
Loans are disbursed in USDC up to a maximum of $100,000, and are secured by deposits in Bitcoin.which acts as a security asset in the event of default.
More specifically, the collateral used is Coinbase Wrapped Bitcoin (cbBTC), which is a wrapped version of BTC that can be more easily used in the DeFi ecosystem.
When a user deposits Bitcoin on… Coinbase To borrow USDC, assets are automatically converted to CBTC and transferred to Morpho.
The USDC obtained as a loan can then easily be exchanged for USD to facilitate the use of liquidity outside crypto circles.
At any time, the debt can be paid directly on the platform, and the locked bitcoins are automatically redeemed to your wallet balance.
This service provided by Coinbase is Free of fees or credit checks It features competitive interest rates with traditional banks.
In addition Funds are provided in real timeWithout long waiting periods, with flexible and unlimited payment terms, and no fines apply.
In this initial phase, Coinbase has only opened on-chain lending to customers based in the US, excluding New York State, but plans to expand to other markets in the future.
The advantage of being able to access a cross-chain loan on Coinbase
Coinbase’s on-chain lending service offers a wide range of benefits.
First of all, users can Request money to cover their expenses without having to sell their crypto assets.
This way, they can continue to benefit from the potential price increase in a bull market, while keeping liquidity ready to use.
Imagine you need $100,000 and have to withdraw it from your cryptocurrency account.
Instead of selling 1 Bitcoin at a market price of $100,000, you can deposit the assets as collateral and wait for the end of the bull market to pay off the debt.
In the best case scenario, if the price of Bitcoin doubles, you will be able to pay off the entire debt by only having to sell 0.5 Bitcoin (plus the interest rates on the loan, of course).
Moreover, by doing so, Excellent tax advantages It is obtained when a capital gain or capital loss is delayed.
Obtaining an on-chain loan does not constitute a taxable financial transaction, at least until the collateral is sold for fiat currencies.
Another advantage of the Coinbase service is the ability to “impact“With your BitcoinUsing borrowed USDC to buy other cryptocurrencies.
Alternatively, USDC can be used in DeFi, where there are currently many opportunities for returns higher than 15%. In this way, profit is obtained from the difference between the return earned and the interest rate on the loan.
Finally, the last advantage of using this service is the possibility of obtaining credit without having to undergo the long and tedious bureaucratic procedures of banks.
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Pay attention to liquidation risks
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In addition to the advantages, the practice of on-chain lending also presents some risks.
Borrowing a crypto asset, on Coinbase or generally on any lending market, involves a High risk of liquidation.
If you are liquidated, this means that you will completely lose the collateral provided as security, if the value of the latter falls below the value of the loan.
For example, if we deposit 1 BTC at a market price of $100,000 to borrow $80,000, and then BTC drops below $80,000, we will be liquidated.
The risk of liquidation is greater in volatile market conditionsEspecially if the trend is down.
Furthermore, the same risks are magnified when using a high LTV (loan-to-value ratio) with a low LTV “An additional factor“, that is, the guarantee is pledged at a value slightly greater than the value of the loan itself.
In general, all lending marketplaces, including Coinbase, impose a LTV limit, which is the ratio between the funding amount and the value of the asset provided.
In our case On Coinbase, the maximum value is 86%. This means we can borrow up to 86% of the value of our collateral.
To reduce the risk of liquidation, it is important to use an LTV of at least 50%. This way, one can act in time in the event of a bear market, adding more collateral or paying off part of the debt.
In any case, it is not advisable to borrow crypto assets without having a good understanding of how these services work.
How to get started and get a balance in USDC on Coinbase
Borrowing USDC on Coinbase is very easy and intuitive.
The first thing you need to do is go to “ConteIn your Coinbase account, click “Prendi in Presteto“then enter the amount of USDC you wish to borrow against your Bitcoin collateral.
Depending on the amount of Bitcoin committed, it is possible to have a balance of up to 100,000 USD, which can be repaid freely without deadlines.
However, remember that over time, more interest accrues to be paid off with the debt itself.
Once the USDC amount is confirmed, the BTC that will be used as collateral is converted into CBTC and transferred on-chain to Morpho.
Within seconds, the USDC will be credited to your Coinbase account.
We remind you of that Interest rates are variable and are calculated by Morpho Based on changing market conditions. These things can change significantly over a few days/weeks.
No fixed repayment plan: Users are free to choose how much to repay the debt and at what time.
