Coinbase Introduces Fixed-Rate Bitcoin Loans, Giving Users an Alternative to Floating Rates

Nasdaq-listed exchange Coinbase has recently enabled its customers to use the US dollar-pegged stablecoin, USDC, as collateral for Bitcoin holdings without any changes to how much interest they would be paying. The exchange has made available fixed-interest-rate Bitcoin-backed USDC loans where the interest and repayment dates are determined at the time of loan issuance. It comes as an alternative to floating-rate loans that Coinbase already offers. This Fixed-rate product operates on Morpho Midnight, a decentralised, non-custodial lending protocol for fixed-rate, fixed-term crypto lending that was introduced in July of this year. It uses the layer-2 network on Coinbase's Ethereum network, called Base.

Fixed-Rate Loans Offer Alternative to Floating Borrowing Costs

It is a significant shift from how lending has been done at Coinbase in the past. In the case of its existing lending services, these have relied on the Morpho Blue protocol, where interest rates fluctuate based on demand and supply and can climb when borrowing demand spikes. The new rate option stands side-by-side with this floating rate option, which has over $1.4 billion (roughly Rs. 13,402 crore) worth of active loans under collateral of $3 billion (roughly Rs. 28,719 crore). 

Fixed-rate loans that use Bitcoin as collateral are not new, as lending platforms such as Ledn and SATL Lending have offered them for several years already. The innovation brought to the table by Coinbase is that its service operates on-chain, via a decentralised finance application and within a consumer app. According to Paul Frambot, co-founder and CEO of Morpho, Morpho and Coinbase's collaborations have been extremely successful, and now they're scaling them.

“We're now building on that foundation and starting to scale: new loan types and use cases, bringing onchain credit one step closer to the scale and diversity of global credit markets,” he said on X. As stated in the Bitcoin Digital Credit Report produced by Apyx and BitcoinTreasuries.net, the current size of the market that is built on Bitcoin is about $16 billion (roughly Rs. 1,53,168 crore). In some projections, it will reach $130 billion (roughly Rs. 12,44,490 crore) by the year 2030.

In April, Coinbase had already introduced crypto-backed USDC loans for users in the UK, which allow users to borrow USDC stablecoin against Bitcoin, Ether, and Coinbase Wrapped Staked Ether (cbETH) with up to 3.5 percent APY in USDC rewards automatically kicking in for Coinbase One members. The loans were again issued through Morpho. Coinbase added that borrowing costs can change frequently, which is why interest rates are variable and are set by Morpho based on market conditions on Base.