Coinbase Joins the Billion-Dollar Lending Club, But There’s A Catch

Coinbase hit a major milestone in its decentralized finance (DeFi) push, surpassing $1 billion in on-chain loan originations.

However, this milestone raises concerns that sudden market swings could trigger forced liquidations.

Coinbase’s Bitcoin Loans Cross $1 Billion in Originations

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According to Dune Analytics data, Coinbase’s on-chain borrow originations now total $1.003 billion, with $1.449 billion in collateral locked.

Coinbase CEO Brian Armstrong highlighted the achievement in a post and set an even more ambitious next target.

“Next goal: $100 billion in on-chain borrow originations. These adoption charts are what every product manager wants to see: hockey stick growth. The on-chain economy is thriving. Proud of the team for making DeFi more accessible and easier to use,” wrote Armstrong.

In hindsight, the Coinbase exchange introduced the loan facility in January, supporting the USDC stablecoin with Bitcoin as collateral.

The service, powered by Morpho’s open-source lending protocol and built on the Base blockchain, is available to US customers except those in New York State.

The $1 billion milestone drew sentiment from other Coinbase executives beyond Armstrong. In the same tone, Max Branzburg, Coinbase’s VP of Product Management, emphasized Bitcoin’s role in the lending model.

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“$1 billion in loans taken against BTC on Coinbase, powered by Morpho Labs on Base. Crypto-backed loans are helping Coinbase users access liquidity for everyday expenses, all without selling their BTC. This is the future of finance,” Branzburg said.

Renowned voices in the industry also welcomed the achievement, including investor Anthony Pompliano, who described it as a clear sign of structural change.

“It is pretty crazy to see how quickly Coinbase passed $1 billion of on-chain loan originations. Seems like a no-brainer, finance is moving onto these new rails,” he remarked.

The ProCap BTC executive also hailed Coinbase for its first-mover advantage in what he described as the contemporary rails of finance.

However, while the fast and steady growth highlights the appetite for crypto-backed loans, it also revives concerns about lending practices that previously fueled some of crypto’s biggest collapses.

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Lessons From DeFi Summer: Collateral Risks Linger Beneath the Hype

While the milestone is being hailed as another step toward mainstream adoption, it has also sparked reminders of past risks.

Sentiment parallels the DeFi Summer of 2020, when lending protocols like Aave and Compound surged past the billion-dollar mark.

That wave of rapid growth eventually exposed weaknesses in collateral management, contributing to the eventual collapses of Three Arrows Capital (3AC) and Celsius in 2022.

This suggests that while the innovation is transformative, lessons learned from past incidents involving collateralization and risk management should not be ignored.

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Notably, margin call risk rises if the Bitcoin price drops sharply, triggering loan repayments.

Coinbase’s lending structure sets a Loan-to-Value (LTV) threshold of 86%, meaning borrowers could face liquidation if Bitcoin’s price falls sharply.

Most users reportedly maintain LTV ratios of 30–40% to minimize risk, though Coinbase allows up to 70% at origination.

Should the LTV cross the 86% warning threshold, a margin call is triggered, and borrowers risk liquidation with a 4.38% penalty.

“If you borrow $100,000 USDC against $250,000 in $BTC, your starting LTV would be 40%. But a sharp BTC drawdown could push you closer to 86% and trigger liquidation,” warned DeFi researcher and analyst Marty Party.

Nonetheless, the $1 billion milestone confirms Coinbase’s growing foothold in on-chain finance and its bid to outpace native DeFi protocols.

Yet the road ahead will depend on whether the exchange can balance accessibility with risk management. It hinges on whether the largest US-based exchange by trading volume metrics can avoid the pitfalls that plagued earlier cycles.