Coinbase has made headlines this week with the introduction of a new lending product that offers competitive yields, claiming returns of up to 10.8% on deposits made in USDC. This ambitious return has raised eyebrows, prompting discussions about the source of these lucrative rates. It has been revealed that the DeFi lender Morpho is currently subsidizing about 6% of the product’s returns, with an additional 5% boost coming from Morpho’s own protocol.
Max Branzburg, Coinbase’s Head of Consumer and Business Products, disclosed on X that the elevated returns are a result of activities and incentives on Morpho’s platform. However, a Coinbase spokesperson noted the rates would fluctuate over time, indicating that the current yield is temporarily enhanced by the Morpho boost. They refrained from commenting on whether this collaboration was part of a formal deal or when the subsidy might conclude.
The unveiling of Coinbase’s lending product has evoked curiosity from potential users, many of whom have taken to social media to question the mechanisms behind such competitive yields. This wave of skepticism is rooted in the industry’s turbulent past, particularly the collapse of high-yield offerings like the Anchor Protocol, which once promised returns of up to 20% before the downfall of Terra’s ecosystem in 2022.
Interestingly, while Coinbase’s blog post introduced the lending product, it notably omitted any mention of Morpho’s subsidization. Branzburg admitted the intentional absence was designed for marketing purposes. The spokesperson for Coinbase pointed out that Morpho’s lending rates can vary and have a dedicated help page on the matter.
Morpho operates on both Ethereum and Coinbase’s layer-2 network, Base, offering a platform where users can create custom markets for overcollateralized loans. In collaboration with Steakhouse Financial, who manages the risk of and allocates USDC to various markets, Coinbase has structured the product carefully to navigate the challenges of the lending environment.
Data from Morpho indicated that a specific vault on the Base network, linked to Steakhouse, had accumulated $24 million in USDC deposits as of Friday. This vault was offering an annual percentage yield of 5.87% but also levied a 25% performance fee on its earnings. Funds from this vault have primarily been supplied to markets for borrowable wrapped versions of Bitcoin and Ethereum, which include Coinbase’s cbBTC and cbETH products. The spokesperson confirmed the vault’s ties to Coinbase’s lending service.
Furthermore, in a complementary move, Morpho noted that Coinbase’s lending product aligns with the exchange’s recent reintroduction of crypto-backed loans, previously halted in May 2023 following regulatory threats from the SEC. Morpho emphasized the symbiotic nature of these services, stating that liquidity provided by lenders directly supports the crypto-backed loan offerings.
Currently, Coinbase users already earn passive returns on USDC held within their accounts, capping at 4.5% APY for subscription-based members. Despite regulatory scrutiny that has branded stablecoin rewards as a “loophole,” many in the banking sector acknowledge that enticing yields are crucial for the adoption of stablecoins in an increasingly competitive landscape.
