Coinbase Is Offering Loans Against Your Bitcoin. Should You Get One?
If you're a Coinbase (COIN) user, you may be able to use the bitcoin (BTCUSD) you own as collateral to get a loan.
The cryptocurrency exchange announced a new service Thursday that will allow its users to raise funds in stablecoin USD Coin (USDC) against their bitcoin holdings.
«You can also convert USDC to USD 1:1 for free to cover major expenses like buying a car or making a downpayment on your mortgage,» Coinbase said.
While the service is integrated into the Coinbase app, the loan will be serviced by a decentralized finance (DeFi) platform known as Morpho, which is deployed on the Coinbase-created Base blockchain.
While using this service, Coinbase's U.S. clients—except those who live in New York state—can pledge their bitcoin to borrow up to $100,000 in USDC using the company's app.
Unlike a regular loan from a financial services company, your ability to borrow in this case is linked to how much bitcoin you have to offer as collateral instead of your credit score or creditworthiness. Your interest rate will depend on the going market rate, and will be visible to you when you're making the loan transaction.There are no required due dates or fixed monthly payments, and you can choose to repay the loan entirely or partially.
When you decide to get a loan against your bitcoin, it first gets converted to Coinbase Wrapped BTC (cbBTC) token, which is a bitcoin-backed token issued by Coinbase. This cbBTC will then be incorporated into a Morpho smart contract on the Base blockchain.
Borrowing against bitcoin holdings has been a key financial service in crypto for a number of years in terms of both DeFi apps and centralized financial institutions. It has its benefits as well as risks.
If you need money and sell your
Read more on investopedia.com
