Coinbase is transforming the credit market in the United States. The platform now offers Bitcoin-backed loans Coinbase with reduced regulatory hurdles. It achieves this by operating as a technology provider. This model connects users directly with the decentralized finance protocol Morpho.
Instead of lending assets directly, Coinbase facilitates the connection. Customers deposit Bitcoin into the Morpho protocol. They then receive loans in the USDC stablecoin. This mechanism allows for competitive rates, as low as 5%. The platform has already surpassed one billion dollars in originations. Furthermore, it plans to raise loan limits from $1 million to $5 million soon.
Coinbase’s strategy is disruptive. Competitors like Ledn or Figure require state lending licenses. This limits their operation in several jurisdictions. Coinbase, by acting as a technological intermediary, does not face the same barriers. This approach relies on the permissionless nature of the decentralized finance ecosystem. However, it raises debates about regulatory compliance.
Are innovation and regulatory compliance in conflict?
Coinbase’s product presents a regulatory challenge. Defi protocols like Morpho were not designed for traditional financial oversight. They do not require strict KYC (Know Your Customer) from all participants. A Coinbase spokesperson assured that its users do undergo a full KYC process. They also rely on Circle’s ability to blacklist illicit addresses. Despite this, the model is more lucrative for the platform. Coinbase earns indirect revenue from fees and reserves.
Coinbase has found an innovative path for Bitcoin-backed loans Coinbase. The initial success, surpassing $1 billion, validates the product’s demand. The company appears to be managing a balance between innovation and regulatory obligations. The New York Department of Financial Services reportedly approved a limited implementation. The future of this model will depend on the reaction of other regulators.
