The cryptocurrency landscape continues to evolve as major players bridge traditional finance with decentralized innovation. In a significant move announced on January 16, 2025, Coinbase has partnered with Morpho, a leading multichain money market protocol, to introduce Bitcoin-backed loans on Base, Coinbase’s layer-2 blockchain built on Ethereum.
This new financial offering allows users to borrow up to $100,000 in USDC without selling their Bitcoin holdings—unlocking liquidity while maintaining exposure to BTC’s long-term price appreciation. The service leverages on-chain infrastructure to provide a seamless, transparent, and efficient borrowing experience.
How Bitcoin-Backed Loans Work on Base
Through this integration, Coinbase users can pledge their Bitcoin (BTC) as collateral to secure loans in USD Coin (USDC), a widely used stablecoin pegged to the US dollar. Once a user initiates the loan process, their BTC is automatically converted into Coinbase Wrapped Bitcoin (cbBTC) at a 1:1 ratio. This wrapped version of Bitcoin is then transferred to Morpho’s decentralized lending platform hosted on the Base network.
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The entire process occurs on-chain, ensuring transparency and eliminating the need for intermediaries. Interest rates are determined dynamically by Morpho’s market-driven algorithm, which adjusts based on supply and demand within the lending pool. Borrowers have access to flexible repayment terms with no fixed schedule—though they must actively monitor their loan-to-value (LTV) ratio.
If the value of the BTC collateral drops significantly, users risk liquidation, where their collateral may be partially or fully sold to repay the outstanding loan. This mechanism protects lenders and maintains the stability of the system.
Morpho’s Growing Role in DeFi
Morpho has rapidly emerged as a key player in the decentralized finance ecosystem. As of 2024, it ranked as the 12th-largest decentralized application (dApp) by total value locked (TVL), surpassing $3.2 billion in assets—a staggering 444% year-over-year growth according to data from DefiLlama.
Its success stems from its capital-efficient lending models and focus on improving yield for liquidity providers while reducing borrowing costs. By integrating with Base and leveraging cbBTC, Morpho expands its reach into one of the fastest-growing layer-2 ecosystems, attracting both retail and institutional users seeking advanced DeFi tools.
Advancing Coinbase’s DeFi Strategy
This partnership underscores Coinbase’s strategic push into decentralized finance. Rather than positioning itself solely as an exchange, the company is actively building infrastructure that enables broader financial use cases for digital assets.
The launch aligns with Coinbase’s earlier introduction of cbBTC in September 2024, which allowed users to bring native Bitcoin into Ethereum-compatible environments like Base. Since its debut, cbBTC has grown to over $2.1 billion in supply, representing approximately 21,495 BTC—a strong indicator of market adoption.
In contrast, Wrapped Bitcoin (WBTC), once the dominant BTC wrapper, saw its supply decline by 13.4% during the same period, despite still holding a larger overall market presence at over 132,000 BTC. This shift suggests growing confidence in cbBTC as a secure and efficient alternative for bringing Bitcoin into DeFi applications.
Tax Efficiency and Financial Flexibility
One of the most compelling aspects of this service is its tax efficiency. In many jurisdictions, selling Bitcoin triggers a taxable event—potentially resulting in capital gains taxes. By using BTC as collateral instead of selling it, users can access fiat-equivalent liquidity (via USDC) without incurring immediate tax liabilities.
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This makes the product especially attractive to long-term holders, investors, and high-net-worth individuals who want to maintain their BTC positions while funding real-world expenses such as home purchases, business investments, or portfolio diversification.
Additionally, borrowers can convert USDC to US dollars at no cost through Coinbase’s platform, further simplifying the path from crypto-backed credit to usable cash.
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These terms reflect common queries from users exploring ways to leverage their cryptocurrency holdings without divesting—highlighting practical use cases beyond speculation.
Frequently Asked Questions (FAQ)
What are Bitcoin-backed loans?
Bitcoin-backed loans allow users to borrow stablecoins like USDC by using their BTC holdings as collateral. The borrower retains ownership of the Bitcoin unless the loan becomes undercollateralized and is liquidated.
How much can I borrow using my Bitcoin?
Through the Morpho platform on Base, eligible users can borrow up to $100,000 in USDC, depending on the value of their pledged Bitcoin and the required loan-to-value ratio.
Is there a credit check involved?
No. These are non-custodial, permissionless loans processed entirely on-chain. Approval depends solely on the amount and value of collateral provided—not personal credit history.
What happens if Bitcoin’s price drops?
A drop in BTC’s price reduces the value of your collateral. If your loan-to-value ratio exceeds the threshold set by Morpho, you may face partial or full liquidation. It’s recommended to monitor your position or repay part of the loan proactively.
Can I use other cryptocurrencies as collateral?
Currently, this service supports Bitcoin via cbBTC on the Base network. Future expansions may include additional assets, but details have not yet been announced.
Why use Base for this service?
Base offers low transaction fees, fast settlement times, and seamless integration with Coinbase’s ecosystem—making it ideal for mainstream adoption of DeFi products like crypto-backed lending.
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The Future of On-Chain Lending
Coinbase’s collaboration with Morpho marks a pivotal step toward mainstreaming decentralized financial tools. By combining trusted custody solutions with open, transparent protocols, the industry is moving closer to a future where digital assets function not just as investments—but as foundational components of personal finance.
As adoption grows and regulatory clarity improves, services like Bitcoin-backed loans could become standard offerings across exchanges and wallets—blurring the lines between traditional banking and blockchain-based finance.
For now, users on Base have a powerful new option: unlock liquidity from their Bitcoin holdings instantly, efficiently, and tax-effectively—all without pressing “sell.”