(MENAFN- Crypto Breaking) Coinbase has also introduced its on-chain lending service with a new lending product that enables customers to borrow up to 1M USDC of Ethereum (ETH) as collateral. The offering is based on the Morpho lending protocol, and it uses the Coinbase Base network to provide the user with a comfortable interface, but it uses the infrastructure of decentralized finance. This is another strategic step taken by Coinbase because it enters the on-chain credit markets in a deeper way.

ETH as Collateral on Coinbase

The new option will enable the customer to commit to deposit wrapped ETH (WETH) as security in order to get liquidity in USDC without selling their assets. Coinbase affirmed that it would roll out staked ETH (also known as cbETH) in the future. The lending mechanism is operated by Morpho, but the retail users deal with each other directly using the Coinbase platform, which makes the process less complex than one that requires navigating the DeFi protocols.

Loan Terms and Liquidation Parameters

Borrowers are provided with loans up to a 75% loan-to-value (LTV) ratio, i.e., with every dollar of ETH pledged, they can get as much as 0.75 USDC. When the LTV is elevated to 86, then the collateral is at risk of being sold off. In these situations, Coinbase levies a liquidation fee, and the penalty sum gets deducted from the loan balance. ETH-backed loans have floating interest rates that are set based on the liquidity and the demand in the market on Morpho. Notably, there is no rigid repayment period; borrowers are given a chance to repay their loans in bits or in full at any time, provided they maintain a good LTV ratio.

Availability and Eligibility

The ETH-backed loan product is now accessible to confirmed Coinbase users in the United States except New York citizens. The borrowers are also able to deposit more collateral to stabilize their positions when the prices are volatile. Coinbase has further explained that the proceeds of the loans may not be utilized in trading on the exchange, further establishing its objective of the product being a liquidity solution with no leverage trading, but a liquidity solution.

Broader Implications for On-Chain Finance

ETH-backed loans have been launched by the company, following the success of Coinbase's Bitcoin-backed loans, which have already supported over $1.25 billion of aggregate borrowing volume. Due to the increasing demand for on-chain credit, the strategy implemented by Coinbase provides users with a hybrid experience-centralized accessibility and decentralized liquidity. The new loan is also an alternative to cash that allows long-term ETH holders to get money without a taxable transaction of disposing of their holdings.

Conclusion

Coinbase's ETH-secured loan product is a major evolution of the on-chain financial offering and the ability to offer more flexibility to crypto holders in their digital asset management. Although this offering is undoubtedly beneficial, including in the form of liquidity and the ability to repay it flexibly, users should be aware of price volatility and the liquidation risks of collateralized lending. Despite this, the acquisition makes Coinbase one of the biggest access points to regulated access to credit on-chain by a large number of retail and institutional investors.

Crypto Investing Risk Warning
Crypto assets are highly volatile. Your capital is at risk. Don't invest unless you're prepared to lose all the money you invest.

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