Coinbase, one of the largest and most famous cryptocurrency exchanges in the world, has introduced a new feature that will revolutionize the way users can access their funds.
Just like a bank, it will be possible to request a loan, obtaining USDC as liquidity, using Bitcoin as collateral without having to sell them.
How does it work?
Nothing could be simpler: just deposit your Bitcoin on the Coinbase exchange and activate the loan service. Bitcoin acts as collateral to guarantee the repayment of the loan. If the value of Bitcoin were to rise, it will be possible to increase the amount borrowed or reduce the interest rate. Conversely, if Bitcoin were to fall below a certain threshold, Coinbase could liquidate a part of Bitcoin to protect the loan.
The advantage lies in several aspects, such as the flexibility to obtain funds when you need them most without having to sell your cryptocurrency holdings, quickly and safely (without long waits like in traditional banks), and with competitive rates, which vary based on market conditions.
In detail, the Bitcoins used as collateral are converted into Coinbase's Bitcoin wrapper (cbBTC), with a 1:1 ratio and transferred to Morpho's smart contracts. In return, users receive USDC, which can be used in various ways. For starters, users earn over 4% in rewards and can send it globally at no cost. Additionally, users can convert USDC to USD for significant expenses, such as car purchases or mortgage down payments, all with a process simplified by the exchange, allowing users to borrow up to 100k USD in USDC, depending on the value of their Bitcoin collateral.
The community has several concerns, including the failure to maintain the value of the collateral to the loan that triggers automatic liquidation. Among other things, variable interest rates, recalculated every few seconds, could add unpredictability for borrowers.
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