Coinbase has announced the expansion of its crypto-backed lending product, now including support for altcoins such as XRP, Dogecoin, Cardano, and Litecoin. Customers can now borrow up to $100,000 in Circle’s USDC stablecoin by using their holdings as collateral on the decentralized finance protocol Morpho. This offering is available throughout the United States, with the exception of New York.
This initiative continues Coinbase’s efforts to enhance the appeal of its lending services, which are nearing $2 billion in originations, according to data from a Dune dashboard. The lending product initially allowed borrowing against Bitcoin and later expanded to Ethereum in November.
As of Wednesday, the combined market capitalization of XRP, Dogecoin, Cardano, and Litecoin stood at approximately $117 billion, as reported by CoinGecko. Although this figure is less than half of Ethereum’s value, these altcoins have garnered significant interest from retail investors in recent years.
The lending product serves as a strategic tool for consumers looking to grow their wealth without selling their digital assets. Certain cryptocurrencies, like Ethereum and Cardano, allow for staking on their networks, enabling users to earn rewards through transaction validation. However, this functionality is not available for XRP, Dogecoin, and Litecoin, making crypto-backed lending a crucial avenue for liquidity generation for holders of these assets.
Coinbase’s recent SEC filing revealed that the exchange holds $17.2 billion in XRP on its platform, further solidifying its position in the altcoin space. By enabling crypto-backed loans, Coinbase allows investors to leverage their appreciated assets for liquidity while potentially avoiding immediate capital gains taxes.
However, it’s important to note the risks associated with liquidations, particularly on Morpho, which happen when the value of the collateral drops significantly in relation to the borrowed amount. This could lead to a situation where third parties can pay back the loan and acquire the collateral at a discounted rate.
Coinbase has cautioned users about the liquidation risks inherent in its lending services, specifying that it does not provide tax advice. In light of a wave of liquidations that occurred earlier this month, wherein approximately $170 million in crypto-backed loans were liquidated over a week, Coinbase stated that it implements measures to reduce liquidation risk. These include maintaining an added buffer when loans are taken out and providing borrowers with notifications as they approach critical thresholds, which can be sent every 30 minutes.
The exchange is also reportedly exploring additional methods to safeguard users’ loans against these risks, as the volatility in the market continues to present challenges.
