Coinbase's Bitcoin Loans Are Not What They Seem

Credit : bitcoinmagazine.com

Earlier at the moment, Coinbase announced the launch of “Bitcoin-Backed Loans” utilizing Base, its personal blockchain. However there’s one downside. (Really two.)

These loans usually are not backed by Bitcoin, and usually are not even on the Bitcoin blockchain.

It is disappointing that in 2025, corporations are nonetheless willingly omitting vital particulars to dupe Bitcoin holders into giving up custody of their cash.

Here is the reality: These loans are backed by cbBTC, Coinbase’s Bitcoin-wrapped product designed to compete with wBTC and tBTC. This isn’t Bitcoin. In reality, cbBTC is maybe probably the most centralized of those “packaged” BTC tokens. To grasp the belief assumptions related to wrapped BTC, I like to recommend this wonderful submit from The Bitcoin layers staff: Analysis of tBTC against wBTC and cbBTC.

Here is the TL;DR:

“The BTC backing the cbBTC token is held in reserve wallets managed by Coinbase, a US-based centralized custody supplier. Coinbase holds funds supporting cbBTC in chilly storage wallets in a lot of geographically dispersed areas and likewise has insurance coverage on the funds they maintain in custody.”

Moreover, Coinbase is issuing these loans by way of Morpho Labs, a DeFi platform that may greatest be described as an AAVE competitor, moderately than issuing these loans on a blockchain that’s even remotely associated to Bitcoin (equivalent to Bitcoin sidechains or Bitcoin L2s). Though Morpho is a good platform – and I’ve no doubts about its safety – it has no connection to Bitcoin.

For instance, I am trying ahead to seeing precise Bitcoin-backed loans issued on the Bitcoin community itself. Many L2 groups are working onerous to make this a actuality and intention to attenuate assumptions about belief – and even eradicate the necessity for bridging altogether (bullish!).

Why do we want Bitcoin-backed loans within the first place? Take into consideration this: Many Bitcoiners at the moment face strict tax laws that impose onerous liabilities on long-term holders who promote their Bitcoin to finance vital purchases equivalent to a home or a automotive. By taking out a mortgage backed by BTC, people can keep away from triggering these tax occasions.

Furthermore, most Bitcoiners are satisfied that the worth of Bitcoin will likely be considerably larger sooner or later than it’s at the moment. So why would anybody promote an asset with such promising long-term potential? Bitcoin-backed loans enable holders to take care of publicity to Bitcoin’s upside whereas accessing the liquidity wanted to fulfill life’s monetary calls for.

In at the moment’s market, choices for Bitcoin-backed lending are restricted. You possibly can depend on centralized corporations (just like the famend staff at Unchained) or flip to ‘DeFi’ protocols, which are sometimes themselves centralized and in some circumstances riskier than centralized options like Unchained. Nonetheless, at the moment there’s none Actual Bitcoin native answer – no choice for Bitcoiners to maintain their cash in escrow whereas accessing loans.

Some corporations, like Lava.xyz, are beginning to shut this hole. Nonetheless, their market share stays a small fraction of the volumes dealt with by current DeFi platforms. (Control Lava: they’re poised to make waves in 2025!)

One quote from the unique announcement stood out to me:

“The combination of Bitcoin-backed lending on Coinbase is ‘TradFi on the entrance finish, DeFi on the again finish,’” Max Branzburg, vp of product at Coinbase, stated in an announcement to The Block.

Let’s name it what it truly is: centralized on the entrance finish and centralized on the again finish.

It is time to go away this deceptive supply behind and convey actual Bitcoin Finance (BTCfi) to customers – not simply advertising and marketing buzzwords and half-truths.

As a substitute of claiming: Bitcoin-backed on-chain lending, to illustrate: multisig-backed derivatives lending on a centralized chain.

This text is a To take. The opinions expressed are solely these of the creator and don’t essentially replicate these of BTC Inc or Bitcoin Journal.

Articles I write could talk about matters or corporations which are a part of my agency’s funding portfolio (UTXO management). The views expressed are solely my very own and don’t signify the views of my employer or its associates. I can’t obtain any monetary compensation for these recordings. Readers mustn’t contemplate this content material as monetary recommendation or as an endorsement of any specific firm or funding. At all times do your personal analysis earlier than making any monetary choices.