Earlier today, Coinbase announced the launch of its “Bitcoin-Backed Loans” through its native blockchain, Base. However, there’s a catch: these loans are not actually backed by Bitcoin nor are they transacted on the Bitcoin blockchain. This raises significant concerns about the direction of cryptocurrency lending in 2025.
It is disheartening to witness the persistent trend of companies misrepresenting their offerings, especially when it comes to Bitcoin holder rights. The reality is that the loans, which might sound beneficial, are collateralized by cbBTC, a product created by Coinbase that wraps Bitcoin to compete with other wrapped BTC tokens like wBTC and tBTC. However, there are essential details that prospective borrowers must consider.
cbBTC differs from traditional Bitcoin, as it is viewed as one of the most centralized wrapped tokens available. To comprehend the trust implications of using cbBTC, it’s crucial to analyze how this product works. The Bitcoin that backs cbBTC is stored in reserve wallets controlled by Coinbase, a centralized custodial entity. This custody system comes with caveats including dependency on Coinbase’s cold storage systems and their insurance on assets.
Additionally, while the loans are issued through Morpho Labs, a decentralized finance platform that resembles an AAVE competitor, there remains no actual connection to the Bitcoin network. To add to this, many Bitcoin enthusiasts are eager for genuine Bitcoin-backed loans that could be issued directly on the Bitcoin network or its layer-2 solutions, which aim to decrease trust issues or potentially eliminate bridging altogether.
Why is there a demand for native Bitcoin-backed loans? Many long-term Bitcoin holders are constrained by tax obligations that arise when they sell their Bitcoin to finance substantial purchases like homes or vehicles. A Bitcoin-backed loan would allow them to access necessary liquidity without triggering these tax burdens. Furthermore, most Bitcoin holders anticipate that the asset’s value will significantly increase over time, making it impractical to liquidate positions that have high growth potential.
Currently, the landscape of Bitcoin-backed lending is limited, predominantly relying on centralized firms or DeFi protocols, which often replicate the risks posed by centralized solutions. Companies like Lava.xyz are attempting to fill this gap in the market, yet their traction remains minimal compared to established DeFi platforms. However, they are gaining attention for their potential impact in 2025.
In a recent bold statement, a Coinbase executive described this integration with Bitcoin-backed loans as ‘TradFi in the front, DeFi in the back.’ However, many within the crypto community view it as centralized both in the front and back-end operations. Such misrepresentations only serve to fuel skepticism surrounding Coinbase’s intentions.
It is time to move past these misleading offers and advocate for authentic Bitcoin Finance (BTCfi). What is paramount is distinguishing actual Bitcoin-backed, on-chain loans from derivatives that are merely multisig-backed on centralized platforms, ultimately undermining the principles of decentralization in finance.