Earlier right this moment, Coinbase introduced the launch of “Bitcoin-Backed Loans” utilizing Base, its native blockchain. However there’s one drawback. (Truly, two.)
These loans will not be backed by Bitcoin, nor are they even on the Bitcoin blockchain.
It’s disappointing that, in 2025, corporations are nonetheless willingly omitting key particulars to mislead Bitcoin holders into giving up custody of their cash.
Right here’s the reality: these loans are collateralized by cbBTC, Coinbase’s Bitcoin-wrapped product designed to compete with wBTC and tBTC. This isn’t Bitcoin. In actual fact, cbBTC is arguably essentially the most centralized of those “wrapped” BTC tokens. To grasp the belief assumptions related to wrapped BTC, I like to recommend this glorious put up by the Bitcoin Layers group: Analyzing tBTC Towards wBTC and cbBTC.
Right here’s the TL;DR:
“The BTC backing the cbBTC token is held in reserve wallets managed by Coinbase, a US-based centralized custodial supplier. Coinbase holds funds backing cbBTC in chilly storage wallets throughout numerous geographically distributed places and moreover has insurance coverage on funds they custody.”
Moreover, as an alternative of issuing these loans on a blockchain even remotely associated to Bitcoin (reminiscent of Bitcoin sidechains or Bitcoin L2s), Coinbase is issuing them by Morpho Labs, a DeFi platform finest described as an AAVE competitor. Whereas Morpho is a well-established platform—and I don’t doubt its safety—it has no connection to Bitcoin.
I, for one, sit up for seeing precise Bitcoin-backed loans issued on the Bitcoin community itself. Many L2 groups are working onerous to make this a actuality, striving to attenuate belief assumptions—and even remove the necessity for bridging altogether (bullish!).
Why do we’d like native Bitcoin-backed loans within the first place? Take into account this: many Bitcoiners right this moment face stringent tax rules that impose hefty liabilities on long-term holders who promote their Bitcoin to fund important purchases like a home or a automobile. Taking out a mortgage backed by BTC permits people to keep away from triggering these tax occasions.
Furthermore, most Bitcoiners are assured that Bitcoin’s value will likely be considerably larger sooner or later than it’s right this moment. So why would anybody promote an asset with such promising long-term potential? Bitcoin-backed loans allow holders to retain publicity to Bitcoin’s upside whereas accessing the liquidity wanted to fulfill life’s monetary calls for.
In right this moment’s market, the choices for Bitcoin-backed lending are restricted. You may both depend on centralized corporations (just like the respected group at Unchained) or flip to “DeFi” protocols, which are sometimes centralized themselves and, in some circumstances, riskier than centralized alternate options like Unchained. Nonetheless, there may be at the moment no actually Bitcoin-native resolution—no choice for Bitcoiners to take care of custody of their cash whereas accessing loans.
Some corporations, like Lava.xyz, are starting to handle this hole. Nonetheless, their market share stays a small fraction of the volumes dealt with by present DeFi platforms. (Regulate Lava—they’re poised to make waves in 2025!)
One quote from the unique announcement stood out to me:
“The mixing of Bitcoin-backed loans on Coinbase is ‘TradFi within the entrance, DeFi within the again,’” stated Max Branzburg, Coinbase’s vice chairman of product, in a press release to The Block.
Let’s name it what it truly is: centralized within the entrance, and centralized within the again.
It’s time to go away these deceptive choices behind and produce true Bitcoin Finance (BTCfi) to customers—not simply advertising and marketing buzzwords and half-truths.
As an alternative of claiming: Bitcoin backed on-chain loans let’s say: multisig-backed derivatives loans on a centralized chain.
This text is a Take. Opinions expressed are solely the writer’s and don’t essentially replicate these of BTC Inc or Bitcoin Journal.
Articles I write could focus on matters or corporations which are a part of my agency’s funding portfolio (UTXO Administration). The views expressed are solely my very own and don’t signify the opinions of my employer or its associates. I’m receiving no monetary compensation for these takes. Readers mustn’t take into account this content material as monetary recommendation or an endorsement of any specific firm or funding. All the time do your personal analysis earlier than making monetary selections.