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Coinbase is re-entering the Bitcoin lending market for its American clientele, though they assert a novel approach this time.
They’re collaborating with Morpho, a decentralized finance lending service boasting substantial deposits of $3.7 billion, to facilitate this. Coinbase isn’t directly participating in the lending; they’re merely acting as an intermediary.
Paul Frambot, Morpho’s chief executive, indicates that his platform’s adaptability renders it ideal for Coinbase. He stresses that Coinbase retains complete authority over the offering and isn’t obligated to cede control to an external entity such as a DAO.
This isn’t Coinbase’s inaugural venture into crypto-backed loans. They previously offered a program enabling clients to borrow up to $1 million, utilizing up to 30% of their Bitcoin assets as security.
Nevertheless, the crypto lending sector has encountered difficulties. The 2022 crypto downturn witnessed the failure of prominent entities like Celsius, Genesis, and BlockFi, resulting in billions in losses and deterring users and investors.
Coinbase is resolute that this new undertaking diverges from its prior one.
This novel service is accessible to US customers, excluding those in New York, with intentions to broaden its availability to additional areas.
Coinbase was compelled to suspend its prior lending program in July 2023 following a lawsuit from the SEC, alleging they were functioning as an unregistered brokerage, exchange, and clearing agency. Presently, Coinbase users can once more borrow Bitcoin directly through the platform.
Greetings, Coinbase Borrow has ceased to exist! A representative from the exchange informed CoinDesk some time ago in May that they were compelled to terminate it as a result of insufficient interest. Ice Open Network and ChainGPT Reveal Innovative Web3-AI Alliance
But don’t be concerned, because Coinbase is currently plunging headlong into the DeFi realm with a fresh crypto-supported lending offering. It resembles granting users entry to those well-known DeFi functionalities without the difficulty of engaging with protocols firsthand or overseeing their personal crypto holdings.
Certain DeFi aficionados are dubbing this the “DeFi mullet” – professionalism in the foreground with an accessible interface, and all the intricate technological aspects concealed in the background. DeFi protocols furnish a plethora of monetary amenities, but let’s be genuine, their user experience is frequently a calamity.
With Coinbase users possessing billions in Bitcoin, this novel crypto-backed loan could infuse a substantial quantity of liquidity into DeFi. It constitutes a significant stride toward consolidating the divide between user-friendly platforms such as Coinbase and the frequently intricate domain of decentralized finance.
Thus, how does this DeFi loan function?
Evidently, when users secure USDC utilizing Bitcoin as security, their security is mechanically transformed into cbBTC and transmitted to the Morpho protocol, as per Coinbase’s VP of Product, Max Branzburg.
Borrowers deposit security into a lending protocol and subsequently borrow another asset at a fluctuating interest rate ascertained by the requisition for the borrowed asset. And given that DeFi loans are overcollateralized, there exists no jeopardy of borrowers defaulting.
CbBTC is Coinbase’s DeFi-harmonious iteration of Bitcoin, a 1:1 depiction of the foremost cryptocurrency reinforced by tokens possessed by the exchange. Within DeFi, there exist no credit evaluations to aid lenders in appraising borrowers. Instead, all loans are overcollateralized, and user undertakings are governed by rigidly coded regulations.
The loan arrangement makes it possible to liquidate collateral as opposed to dealing with uncollectible debt. This entails selling the assets used as security in order to pay for the borrowed funds.
If the value of the borrower’s security declines or interest rates rise excessively, liquidation may take place. Do On-Chain Measurements Herald the Cessation of Bitcoin’s Upward Trend?
Branzburg claims that Coinbase provides these loans and pays network costs, but users are not protected from liquidation. Borrowers are responsible for the variable interest rates associated with their loans.
