Coinbase Relaunches Bitcoin Loans: Can They Succeed?

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The world of cryptocurrency finance is evolving rapidly, and Coinbase is making a bold return to Bitcoin-backed lending. After shutting down its initial loan program in 2023 due to regulatory scrutiny and lackluster demand, the exchange is back with a reimagined model—this time powered by decentralized finance (DeFi) technology. The new approach aims to offer users a safer, more transparent, and accessible way to borrow against their Bitcoin holdings without selling them.

But can Coinbase overcome past skepticism and position itself as a trustworthy player in the volatile crypto lending space? Let’s explore the journey, the changes, and the potential for success.

Why the First Attempt Failed

Coinbase’s original foray into crypto lending allowed users to borrow up to $1 million by locking up just 30% of their Bitcoin as collateral. On paper, it was an attractive offer: access liquidity without triggering taxable events from selling crypto. However, the program struggled almost immediately.

By July 2023, Coinbase announced the shutdown of its lending service. While the company cited “low user demand” as the primary reason, regulatory pressure played a significant behind-the-scenes role. The U.S. Securities and Exchange Commission (SEC) had filed a complaint alleging that Coinbase operated as an unregistered securities exchange, broker, and clearing agency. This legal uncertainty likely accelerated the decision to pull the plug on innovative but legally ambiguous products like crypto loans.

The failure wasn’t unique to Coinbase. The broader crypto lending sector faced massive setbacks during the 2022 market crash, with high-profile collapses of platforms like Celsius and BlockFi shaking investor confidence. These events left a lasting stigma around crypto-backed loans—making trust the biggest hurdle for any relaunch.

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A Smarter, Safer Approach: DeFi-Powered Lending

This time around, Coinbase isn’t acting as the direct lender. Instead, it has partnered with Morpho, a leading decentralized finance protocol managing over $3.7 billion in deposits. This strategic shift marks a fundamental change in risk structure and operational design.

Rather than issuing loans from its own balance sheet, Coinbase now serves as an interface connecting users to Morpho’s peer-to-pool lending markets. Users deposit Bitcoin as collateral and receive USDC loans—without ever having to navigate complex DeFi interfaces themselves.

What makes this model compelling is the hybrid advantage:

Paul Frambot, CEO of Morpho Labs, emphasized that this collaboration gives Coinbase greater control and flexibility than typical DAO-governed protocols, allowing faster updates and better user safeguards.

“Bitcoin-backed loans are here. Borrow USDC against Bitcoin, without selling it.”
— Coinbase Official Announcement, January 16, 2025

Currently, the service is available to U.S. residents excluding New York, with plans to expand both geographically and in terms of supported collateral assets. Future rollouts may include Ethereum and select stablecoins, broadening access across more user segments.

Rebuilding Trust in Crypto Lending

After years of scandals and insolvencies, trust remains the most valuable currency in crypto finance. The 2022 collapse of centralized lenders eroded confidence in custodial models where users had no visibility into how funds were used.

Coinbase’s new DeFi-integrated model attempts to address these concerns through transparency and reduced counterparty risk. Since funds are drawn from decentralized liquidity pools rather than corporate treasuries, there’s less chance of mismanagement or misuse.

Moreover, smart contract audits, open-source codebases, and real-time on-chain tracking allow technically inclined users to verify the health of the system independently. For mainstream users, Coinbase’s brand reputation acts as a layer of reassurance.

Still, challenges remain:

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Frequently Asked Questions (FAQ)

1. How do Bitcoin-backed loans work on Coinbase?

Users lock their Bitcoin as collateral and borrow USDC (a dollar-pegged stablecoin). The loan amount depends on the collateral value and required loan-to-value ratio. No credit checks are needed, and funds are typically disbursed instantly.

2. Is my Bitcoin safe when used as collateral?

Yes—your Bitcoin is held securely within a smart contract-based vault. It cannot be accessed or moved by anyone except you, unless it's liquidated due to a drop in value below the maintenance threshold.

3. Why is New York excluded from the service?

New York has some of the strictest financial regulations in the U.S., including the BitLicense requirement for crypto businesses. Many platforms delay launches there until full compliance is achieved.

4. What happens if Bitcoin’s price drops suddenly?

If the value of your collateral falls below a certain level (e.g., 150% LTV), your position becomes subject to liquidation. You’ll receive warnings via email and in-app alerts before this occurs.

5. Are there interest rates on these loans?

Yes. Rates are variable and determined by supply and demand in the underlying Morpho lending pool. Users can monitor current rates directly in the app before opening a position.

6. Will other cryptocurrencies be accepted as collateral in the future?

Coinbase has confirmed plans to add more collateral types beyond Bitcoin, including Ethereum and select blue-chip altcoins, though specific timelines haven’t been announced.

The Road Ahead

Coinbase’s relaunch of Bitcoin-backed loans represents more than just a product revival—it’s a signal of maturation in the crypto finance ecosystem. By embracing DeFi infrastructure while maintaining a polished user experience, Coinbase is bridging two worlds: institutional-grade accessibility and decentralized innovation.

For users, this means greater financial autonomy—accessing cash when needed without parting with long-term holdings. For the industry, it’s a step toward sustainable, transparent lending models that prioritize security over hype.

Yet success isn’t guaranteed. Adoption will depend on clear communication, competitive rates, robust risk management, and continued regulatory clarity. If executed well, this service could become a cornerstone of on-chain finance for mainstream users.

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Core Keywords

With strategic partnerships, improved risk controls, and growing demand for non-custodial financial tools, Coinbase may finally have the formula to make crypto lending work—for users, regulators, and the future of finance alike.