Coinbase is enhancing its lending services by launching a new feature that allows users to borrow USDC backed by tokenized staked ether, known as cbETH. This innovative offering enables eligible customers to access up to $1 million in liquidity without the need to unstake their ether, a significant development amid growing regulatory scrutiny in the United States.
The borrowing feature is currently exclusive to customers in the United States, excluding New York, with limited availability in the United Kingdom. It provides a way for users to unlock liquidity from their staked holdings while still earning staking rewards on their ether. This allows for flexibility in managing financial needs, whether for large purchases, portfolio rebalancing, or covering unexpected expenses.
With this new arrangement, customers can leverage their cbETH as collateral, maintaining their staking position while borrowing USDC. The eligibility for loans and the amounts available are closely tied to the value of the crypto posted as collateral, alongside the platform”s risk management parameters.
At the core of this new lending structure is Morpho, an onchain lending protocol that facilitates overcollateralized borrowing through the use of smart contracts. Once a loan is approved, the funds are credited to the user”s Coinbase account, while the pledged cbETH is transferred onchain. Borrowers can request loans up to $1 million in USDC, adhering to standard loan-to-value requirements set by the platform.
To mitigate risk, Coinbase has established a loan-to-value ratio limit of 86%. Borrowers must ensure their ratio remains below this threshold to prevent automatic liquidation of their collateral during periods of high volatility in the price of ether. This design reflects typical frameworks used in crypto margin trading, where collateral buffers are larger to accommodate rapid price fluctuations. Users are advised to actively monitor their positions and be prepared to add collateral or repay principal as market conditions change.
Coinbase argues that this new borrowing feature significantly extends the utility of its staking program, transforming locked staking positions into liquid funds while still benefiting from staking returns. This approach aligns with broader trends in decentralized finance, where liquid staking tokens are utilized as both yield-generating assets and instruments in lending markets.
This rollout comes as Coinbase continues to expand its staking services across various states in the U.S. Recently, the exchange secured approval to offer staking in New York, marking a critical regulatory milestone. Currently, Coinbase”s staking services are available in 46 U.S. states, although some states, including California and New Jersey, have imposed restrictions on retail staking programs.
As Coinbase advances its lending and staking offerings, it remains embroiled in a significant policy debate regarding the Clarity Act, a proposed regulatory framework for the cryptocurrency market. The exchange”s CEO recently retracted support for a draft version of the bill, highlighting divisions within the industry. This disagreement raises critical questions about the future of comprehensive regulation in the United States and the ability of the crypto sector to present a unified front.
Despite the ongoing regulatory challenges, the introduction of cbETH collateral loans demonstrates Coinbase”s commitment to innovation in the crypto lending space. The long-term success of such products will likely hinge on how regulators define the parameters for staking, stablecoins, and onchain borrowing in the evolving landscape of cryptocurrency regulation.
