Captain’s note
- With Coinbase’s crypto-backed loans, you borrow USDC with your crypto as collateral through the Morpho onchain lending protocol on Base; Coinbase provides the interface.
- Coinbase lists no credit checks among the benefits and says variable-rate loans have no due dates or minimum payments, while interest keeps accruing.
- If the loan balance, including interest, reaches the liquidation threshold, the collateral is sold automatically to repay the loan plus a penalty.
If you hold bitcoin and need cash, there are two obvious moves: sell some, or borrow against it. A bitcoin-backed loan is the second option. You pledge bitcoin as collateral, receive dollars or a dollar stablecoin, and get the bitcoin back when you repay. Nothing about the idea is new; pawnshops and margin loans work the same way. What is different is how fast the collateral can be sold if its price falls, and who is holding it while you owe the money.
This guide walks through the mechanics using the product that is easiest to read about in public: Coinbase’s crypto-backed loans, which the company documents in its help center. The terms below are Coinbase’s own, as published in October 2026. Other lenders work differently, and Coinbase can change its terms at any time, so treat the numbers as an example of how such a loan is built rather than a quote.
The basic deal
Every collateralized crypto loan has the same four parts:
- Collateral: the bitcoin you lock up. You still own it in the economic sense, but you cannot sell or move it while it secures the loan.
- Principal: what you borrow. On Coinbase this is paid in USDC, a stablecoin designed to track the U.S. dollar, which Coinbase says can be converted to dollars 1:1.
- Interest and fees: the cost of borrowing, added to what you owe over time.
- A liquidation rule: the point at which the lender, or a smart contract, sells your collateral to pay itself back.
Because the loan is secured by an asset worth more than the loan, the lender does not rely on your income or your credit history. Coinbase lists no credit checks among the benefits of its product. That is the appeal and the catch at the same time: the only thing protecting the lender is the bitcoin, so the bitcoin is what gets sold if anything goes wrong.
What happens when you borrow on Coinbase
Coinbase describes its product as an interface to Morpho, an onchain lending protocol running on Base, a blockchain network. The steps, as its help center lays them out, are:
- You choose a variable-rate or a fixed-rate loan and enter the amount. The app shows the interest rate, the borrowing limit and a one-time processing fee before you confirm.
- The bitcoin you pledge leaves your Coinbase account. Coinbase says it is converted 1:1 to Coinbase Wrapped BTC (cbBTC) at no charge and transferred to a Morpho smart contract, where it is held as collateral.
- Morpho disburses the USDC, which arrives in your Coinbase balance.
- Your collateral still shows in your total balance, marked as locked and not tradeable. The debt is not subtracted from that total, so the balance can look bigger than what you actually own outright.
Coinbase says the service is available to verified customers in the United States excluding New York, with limited access in the UK and Canada. Bitcoin was the first collateral; the help center now lists several other crypto assets as well, with limits that vary by asset and are shown in the app.
Repaying
The repayment terms depend on the rate type you pick:
| Variable rate | Fixed rate | |
|---|---|---|
| Term | None | Fixed term with a maturity date |
| Payments | No due dates or minimum payments; repay in part or in full at any time | Must be repaid in full by maturity |
| Interest | Changes with supply and demand in the lending market | Locked when you confirm the loan |
| Paying early | Stops further interest | Does not reduce the interest owed, Coinbase says |
| If unpaid | Interest keeps accruing; liquidation only if the loan-to-value limit is reached | Becomes eligible for liquidation after maturity, even if otherwise healthy |
When you repay in full, including interest and fees, Coinbase says the collateral is returned automatically. No monthly bill sounds relaxed, but it means nobody forces you to pay down the balance while it grows. On a variable-rate loan, interest accrues every moment and quietly pushes you toward the liquidation line.
The number that runs the loan
Everything above is secondary to one ratio: loan-to-value, or LTV. Coinbase defines it as the total outstanding amount of your loan, including principal and all accrued and unpaid interest, divided by the current market value of your collateral. Borrow $100 against $1,000 of bitcoin and your LTV is 10%.
LTV rises when bitcoin’s price falls, when interest accrues, or when you borrow more. It falls when you repay or the price rises. Each lending market has a liquidation threshold; for bitcoin on Coinbase it is 86%. If your LTV reaches it, the collateral is sold automatically to repay the loan, and Coinbase says an additional penalty of 4.38% is included. The details, including the warning bands and what you can do before that point, are in Loan-to-Value and Margin Calls: The Ratio That Decides Your Loan and Liquidation Risk Explained: What Happens When Your Collateral Is Sold.
Tip: Before borrowing, write down the bitcoin price at which your loan would be liquidated. If that price is closer to today’s than you are comfortable with, borrow less.
Who is holding your bitcoin
This is the question that separated losses from survivals in 2022. On Coinbase’s product the collateral sits in a smart contract on Morpho, and Coinbase’s own terms say it does not control the smart contracts or the terms of the lending protocol. That removes one risk, a company quietly lending out your collateral, and adds others: Coinbase lists protocol-level security vulnerabilities, protocol-level liquidity issues and smart wallet issues among the risks.
Centralized lenders work the other way: the company takes your coins into its own custody. The SEC warns that some custodians use deposited crypto as collateral for their own purposes, a practice called rehypothecation, and that people who deposit crypto with a platform might cease to have legal ownership of it. The difference is explained in Centralized vs DeFi Crypto Lending: Who Holds the Collateral and Custody and Rehypothecation: What Happens to Your Collateral.
Before you borrow
A crypto-backed loan can make sense for a short, planned need when you would otherwise sell bitcoin you intend to keep. It is a poor fit for money you cannot repay quickly if the price drops. Compare it with simply selling in Crypto Loans vs Selling Bitcoin: Comparing the Two Ways to Raise Cash, and read the tax side in Taxes on Crypto-Backed Loans: What the IRS Rules Say and Don’t Say. None of this is financial advice; the SEC’s general rule for crypto applies here too: only put at risk money you can afford to lose.