Earlier today, Coinbase <a target="_blank" href="https://x.com/TheBlock__/status/1879892366653370686?t=T750qjq6HZhXfqpsqUOlZw&s=19″>announced the launch of “bitcoin Backed Loans” using Base, its native blockchain. But there is a problem. (Actually, two.)
These loans are not backed by bitcoin, not even on the bitcoin blockchain.
It is disappointing that in 2025, companies are still voluntarily omitting key details to mislead bitcoin holders into giving up custody of their coins.
Here's the truth: These loans are collateralized by cbBTC, Coinbase's bitcoin-wrapped product designed to compete with wBTC and tBTC. This is not bitcoin. In fact, cbBTC is arguably the most centralized of these “wrapped” btc tokens. To understand the trust assumptions associated with wrapped btc, I recommend this excellent post from <a target="_blank" href="https://x.com/bitcoinlayers”>bitcoin Layers equipment: 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 US-based centralized custody provider. Coinbase maintains funds backing cbBTC in cold storage wallets in multiple geographically distributed locations and, In addition, they have insurance on the funds they guard.”
Additionally, rather than issuing these loans on a blockchain remotely related to bitcoin (such as bitcoin sidechains or bitcoin L2), Coinbase issues them through Morpho Labs, a DeFi platform that is best described as a competitor to AAVE. . While Morpho is a well-established platform (and I don't doubt its security), it has no connection to bitcoin.
I, for one, hope to see real bitcoin-backed loans issued on the bitcoin network itself. Many L2 teams are working hard to make this a reality, striving to minimize trust assumptions, or even eliminate the need for bridging altogether (bullish!).
Why do we need native bitcoin-backed loans in the first place? Consider this: Today, many bitcoiners face strict tax regulations that impose considerable obligations on long-term holders who sell their bitcoins to finance major purchases, such as a house or a car. Taking out a btc-backed loan allows people 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 their holders to maintain exposure to the benefits of bitcoin while accessing the liquidity needed to meet the financial demands of life.
In the current market, options for bitcoin-backed loans are limited. You can rely on centralized companies (like the reputable team at Unchained) or turn to “DeFi” protocols, which are often centralized and, in some cases, riskier than centralized alternatives like Unchained. However, there is currently no really Native bitcoin Solution: Bitcoiners have no option to maintain custody of their coins while accessing loans.
Some companies, like Lava.xyz, are starting to address this gap. However, its market share remains a small fraction of the volumes handled by existing DeFi platforms. (Keep an eye out for lava—they're ready to make a splash in 2025!)
A quote from the original ad caught my attention:
“The integration of bitcoin-backed loans into Coinbase is ‘TradFi in front, DeFi in back,’” Max Branzburg, vice president of product at Coinbase, said 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 bring real bitcoin Finance (BTCfi) to users, not just marketing buzzwords and half-truths.
Instead of saying: on-chain loans backed by bitcoin, let's say: derivatives loans backed by multiple signatures on a centralized chain.
This article is a Carry. The opinions expressed are entirely those of the author and do not necessarily reflect those of btc Inc or bitcoin Magazine.
The articles I write may discuss topics or companies that are part of my company's investment portfolio (UTXO Management). The opinions expressed are solely my own and do not represent the opinions of my employer or its affiliates. I do not receive any financial compensation for these shoots. Readers should not consider this content as financial advice or an endorsement of any particular company or investment. Always do your own research before making financial decisions.
