Captain’s note
- Coinbase says variable rates depend on supply and demand in the lending market and are calculated automatically by Morpho, changing with each block on Base.
- A one-time processing fee is charged each time you borrow, is added to the principal, and interest accrues on the principal plus fees.
- On Coinbase fixed-rate loans, repaying early does not reduce the interest owed.
Crypto lenders advertise a rate in large type. The rate matters, but on a loan with no payment schedule it does something more than cost money: it raises your loan-to-value every day the loan is open. This guide covers how rates are set, the fees that sit next to them, and what to compare. It does not predict where rates will go, and it does not name a best lender.
Variable rates come from a market
On Coinbase’s crypto-backed loans the variable rate is not set by Coinbase in a back office. The company says it is calculated automatically by Morpho, the onchain protocol behind the loans, based on market conditions, and that it varies every few seconds with each block created on the Base blockchain. Its help center describes the driver as supply and demand in the lending market: when more people want to borrow USDC relative to what lenders supply, the rate rises, and when lenders supply more, it falls.
The lenders on the other side are often ordinary users. Coinbase’s lending product lets customers deposit USDC into Morpho vaults that fund these markets, and it describes the lending rate there as fluctuating with the same supply and demand. Your borrowing cost and someone else’s yield are two ends of the same market.
Two consequences follow. First, the rate on the day you borrow is not the rate you will pay over the life of the loan. Second, the rate can jump when markets are stressed, which is exactly when your collateral may be falling too.
Fixed rates trade flexibility for certainty
Coinbase also offers fixed-rate loans. An indicative rate is shown before you borrow and the final rate is set when you confirm. The trade-offs, from Coinbase’s own terms:
- A fixed term with a maturity date, and the loan must be repaid in full by then.
- Repaying early does not reduce the interest owed.
- If the loan is not repaid by maturity, it becomes eligible for liquidation even if its loan-to-value is otherwise healthy, and Coinbase says the liquidation penalty increases the longer it stays unpaid after maturity, up to a maximum, over approximately 15 minutes.
- For each collateral asset you can hold either a variable-rate or a fixed-rate loan, not both, and loans cannot be converted between the two.
A fixed rate removes rate surprises, but it adds a hard deadline that a variable loan does not have. Put the maturity date in your calendar the day you borrow.
The fees beside the rate
| Cost | How Coinbase describes it | Why it matters |
|---|---|---|
| Processing fee | One-time fee each time you borrow, including when adding to an existing loan; added to the principal | You pay interest on the fee itself |
| Platform fee | The rate may include a platform fee from Coinbase in addition to the market rate | The market rate alone understates your cost |
| Network (gas) fees | Sponsored by Coinbase for this product | Other platforms may pass them on |
| Liquidation penalty | An additional 4.38% included when collateral is sold to repay the loan | Only paid if things go wrong, but then on top of a forced sale |
Coinbase says the interest fees it collects are shown in the loan details section of the Borrow hub. Look at that figure after the first month; it is the honest version of the headline rate.
Interest pushes you toward liquidation
Loan-to-value includes accrued and unpaid interest. On a variable-rate loan with no minimum payment, unpaid interest simply adds to what you owe, so LTV drifts up even if bitcoin’s price does not move. That is why Coinbase’s help pages pair the no-due-dates promise with a reminder to monitor loan health. The arithmetic of how far a balance can grow before it hits the line is in Loan-to-Value and Margin Calls: The Ratio That Decides Your Loan.
Tip: Paying the interest as it accrues keeps your loan-to-value from creeping up. Treat it as a monthly bill even if nobody sends one.
High yields on the other side were a warning
In 2022 several crypto platforms paid depositors yields far above bank rates, funded by lending those deposits out. The FTC says Celsius promised rewards as high as 18 percent annual percentage yield in its Earn program, while the company was making unsecured loans totaling $1.2 billion as of April 2022. The SEC’s 2022 bulletin on crypto interest-bearing accounts warned that such accounts are not as safe as bank or credit union deposits and that the interest depends on the company’s own lending and investing. When a borrowing or deposit rate looks out of line with the market, ask where the money comes from; Lessons From Crypto Lender Bankruptcies: Celsius, Voyager and BlockFi tells what happened when nobody did.
What to compare
- The annual rate, and whether it is variable or fixed.
- Every fee that is added to the principal, and whether you pay interest on it.
- Whether gas fees are charged to you.
- The liquidation threshold and penalty, because a cheap loan with a tight threshold can cost more in a bad month.
- How the lender holds your collateral, covered in How to Compare Crypto Lenders: A Checklist Built From Regulators’ Warnings.