Coinbase users can now unlock liquidity in USDC without selling their digital holdings. According to an announcement from the trading platform, the service is powered by an integration with the decentralized lending protocol Morpho on the Base network.
At launch, the feature is available to U.S. customers, with the exception of New York residents.
Limits
The exchange has established borrowing caps based on the type of collateral provided. Bitcoin holders can secure loans of up to $5,000,000, while the limit for Ethereum is set at $1,000,000.
Crucially, the borrowing process is not treated as a taxable event. This allows investors to access cash for personal needs without triggering capital gains taxes or selling their long-term positions.
The technical engine
Technically, the process is managed via Morpho smart contracts, self-executing blockchain algorithms that handle collateral without the need for manual intermediaries.
For users pledging Bitcoin, the assets are converted into Coinbase Wrapped BTC (cbBTC). This specialized token enables the use of Bitcoin within the decentralized finance (DeFi) ecosystem on the Base network.
Interest rates start at a competitive 5% APR, which the company claims is twice as low as average market offerings. While a one-time processing fee is added to the principal at the time of the loan, there are no rigid repayment schedules. Clients maintain total control over when and in what increments they settle their debt.
Risk management
Investors are responsible for monitoring their Loan-to-Value (LTV) ratio, the balance of the loan relative to the market value of the collateral. If the LTV hits the 86% threshold, the system will automatically trigger a liquidation event. In such a case, a portion of the collateral is sold to cover the debt and a penalty fee, with the remaining balance returned to the user's account.
Coinbase representatives emphasized that they cannot intervene in the liquidation process, as it is governed entirely by the autonomous code of the Morpho protocol.