Coinbase is broadening its crypto-backed lending offering in the United States to support additional assets, including XRP, Dogecoin (DOGE), Cardano’s ADA, and Litecoin (LTC). The expansion increases access to services that the company has been pitching to provide customers access to unlock liquidity without selling their holdings across the U.S., excluding New York.
How Coinbase’s lending product works on-chain
The lending product will allow the users to pose crypto as collateral and borrow up to $100,000 in USD Coin. The loans are facilitated through Morpho, a decentralized network that connects lenders and borrowers, and carried on-chain instead of being funded through Coinbase’s own ledger.
This release also brings crypto tokens that are more focused on retail investors to be introduced into a product line that had previously concentrated on only Bitcoin and Ether. Ether and ADA holders can earn yield through staking on their native networks; however, assets like XRP, DOGE, and Litecoin do not offer built-in reward mechanisms.
This way, investors are able to borrow against their holdings, one of the few ways to access liquidity without leaving their positions.
Coinbase is increasing the range of assets that can be used as collateral on its platform. According to an SEC filing, as of December 31, the exchange’s customer accounts held $17.2 billion in XRP, making it one of the most substantial assets on the platform.
Coinbase expands collateral options beyond Bitcoin and Ether
Crypto-backed loans are mostly viewed as a tax-efficient way to access liquidity since borrowing against crypto holdings is not a sale, as it does not trigger a capital gains tax.
However, this strategy comes with notable risk with market volatility. A sharp drop in the value of the pledged collateral can push the loan-to-value ratio beyond safe limits, according to reports. That would then significantly impact the position, which may be liquidated, meaning another party can step in to repay the outstanding debt and claim the collateral, often at a discounted rate.
