@GuerillaV2
Today, Coinbase announced the launch of “Bitcoin-backed loans” using Base, its native blockchain. But there’s a problem. (Actually, two.)
These loans are not backed by Bitcoin, nor are they even on the Bitcoin blockchain.
It’s disappointing that, in 2025, companies are still willfully omitting key details to trick Bitcoin holders into giving up custody of their coins.
Here’s the truth: These loans are backed by cbBTC, Coinbase’s Bitcoin-wrapped product designed to compete with wBTC and tBTC. This is not Bitcoin. In fact, cbBTC is probably the most centralized of these “wrapped” BTC tokens. To understand the trust assumptions associated with wrapped BTC, I recommend this excellent post from the Bitcoin Layers team: Analysis of tBTC vs. wBTC and cbBTC.
Here’s the TL;DR:
“The BTC backing the cbBTC token is held in reserve wallets managed by Coinbase, a centralized custody provider based in the United States. Coinbase holds the funds backing cbBTC in cold storage wallets in a number of geographically distributed locations and they also have insurance on the funds they hold.”
Furthermore, instead of issuing these loans on a blockchain even remotely related to Bitcoin (such as the Bitcoin or Bitcoin L2 sidechains), Coinbase issues them through Morpho Labs, a DeFi platform best described as an AAVE competitor. Although Morpho is an established platform, and I don’t doubt its security, it has no connection to Bitcoin.
I, for one, can’t wait to see real Bitcoin-backed loans issued on the Bitcoin network itself. Many L2 teams are working hard to make this a reality, trying to minimize trust assumptions or even eliminate the need for bridge building altogether (bullish!).
First, why do we need native loans backed by Bitcoin? Consider this: Many Bitcoiners today face stringent tax rules that impose heavy liabilities on long-term holders who sell their Bitcoin to finance significant purchases like a house or car. Taking out a BTC-backed loan allows individuals to avoid triggering these tax events.
Furthermore, most Bitcoiners are confident that the price of Bitcoin will be significantly higher in the future than today. So why would anyone sell an asset with such promising long-term potential? Bitcoin-backed loans allow holders to maintain upside exposure to Bitcoin while accessing the liquidity needed to meet life’s financial needs.
In today’s market, options for Bitcoin-backed loans are limited. You can rely on centralized companies (like the reputable team at Unchained) or resort to “DeFi” protocols, which are often centralized and, in some cases, riskier than centralized alternatives like Unchained. However, it currently does not exist Truly Native Bitcoin Solution: No option for Bitcoiners to maintain custody of their coins while accessing loans.
Some companies, like Lava.xyz, are starting to fill this gap. However, their market share remains a small fraction of the volumes handled by existing DeFi platforms. (Keep an eye on Lava – they’re ready to make waves in 2025!)
A quote from the original ad struck me:
“The integration of Bitcoin-backed lending on Coinbase is ‘TradFi in the front, DeFi in the back,’” said Max Branzburg, vice president of product at Coinbase, in a statement to The Block.
Let’s call it what it really is: front-centralized and rear-centralized.
It’s time to leave these misleading offers behind and offer users the real Bitcoin Finance (BTCfi), not just buzzwords and half-truths.
Instead of saying: Bitcoin-backed on-chain loans, we say: Multisig-backed derivative loans on a centralized chain.
This article is a Take. The opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
The articles I write may cover topics or companies that are part of my company’s investment portfolio (UTXO management). The opinions expressed are solely mine and do not represent the opinions of my employer or its affiliates. I do not receive any financial compensation for this filming. Readers should not consider this content as financial advice or an endorsement of any particular company or investment. Always do your research before making financial decisions.