Earlier right now, Coinbase announced the launch of “Bitcoin-Backed Loans” utilizing Base, its native blockchain. However there’s one downside. (Truly, two.)
These loans will not be backed by Bitcoin, nor are they even on the Bitcoin blockchain.
It’s disappointing that, in 2025, firms 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. The truth is, cbBTC is arguably probably 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 Against 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 quite a lot of 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 (corresponding to Bitcoin sidechains or Bitcoin L2s), Coinbase is issuing them via Morpho Labs, a DeFi platform greatest 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 laborious to make this a actuality, striving to attenuate belief assumptions—and even remove the necessity for bridging altogether (bullish!).
Why do we want native Bitcoin-backed loans within the first place? Contemplate this: many Bitcoiners right now face stringent tax rules that impose hefty liabilities on long-term holders who promote their Bitcoin to fund vital 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 worth might be considerably greater sooner or later than it’s right now. 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 now’s market, the choices for Bitcoin-backed lending are restricted. You’ll be able to both depend on centralized firms (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 really Bitcoin-native resolution—no choice for Bitcoiners to keep up custody of their cash whereas accessing loans.
Some firms, like Lava.xyz, are starting to deal with this hole. Nonetheless, their market share stays a small fraction of the volumes dealt with by present 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 loans on Coinbase is ‘TradFi within the entrance, DeFi within the again,’” mentioned Max Branzburg, Coinbase’s vp of product, in an announcement 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 convey 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 completely the writer’s and don’t essentially replicate these of BTC Inc or Bitcoin Journal.
Articles I write might talk about matters or firms which might be a part of my agency’s funding portfolio (UTXO Management). 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 shouldn’t take into account this content material as monetary recommendation or an endorsement of any explicit firm or funding. At all times do your personal analysis earlier than making monetary selections.
