Earlier today, Coinbase Announce Launching “Bitcoin Backed Loans” using Base, its native blockchain. But there is one 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 willingly omitting key details to mislead Bitcoin holders into giving up custody of their coins.
Here’s the truth: These loans are collateralized by cbBTC, a Bitcoin-wrapped product from Coinbase designed to compete with wBTC and tBTC. This is not Bitcoin. In fact, cbBTC is arguably the most centralized of the “wrapped” BTC tokens. To understand the trust assumptions associated with wrapped BTC, I recommend this excellent post from before Bitcoin layers a team: Analysis of tBTC versus 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 central custody services provider. Coinbase holds the funds backing CBBTC in cold storage wallets across a number of geographically distributed locations and additionally has insurance on the funds it holds.” .
Furthermore, instead of issuing these loans on the blockchain even if they are remotely linked to Bitcoin (such as Bitcoin Sidechains or Bitcoin L2s), Coinbase issues them through Morpho Labs, a DeFi platform best described as an AAVE competitor. Although Morpho is a well-established platform – and I don’t doubt its security – it has nothing to do with Bitcoin.
Personally, I’m looking forward to seeing actual bitcoin-backed loans issued on the bitcoin network itself. Many L2 teams work hard to achieve this, striving to reduce trust assumptions – or even eliminate the need for bridging altogether (upward!).
Why do we need local loans backed by Bitcoin in the first place? Consider the following: Many Bitcoin users today face strict tax regulations that impose huge liabilities on long-term Bitcoin holders who sell their Bitcoin to finance large purchases like a house or car. Taking out a loan backed by BTC allows individuals to avoid the trigger of these tax events.
Moreover, most Bitcoin users are confident that the price of Bitcoin will be much higher in the future than it is today. Why would anyone sell an asset with such promising long-term potential? Bitcoin-backed loans allow holders to maintain exposure to Bitcoin’s upside while accessing the liquidity needed to meet the demands of financial life.
In today’s market, Bitcoin-backed lending options are limited. You can either rely on centralized companies (like the reputable team at Unchained) or turn to “DeFi” protocols, which are often centralized themselves and, in some cases, riskier than centralized alternatives like Unchained. However, there is currently no truly Native Bitcoin Solution – There is no option for Bitcoin users to hold on to their coins while taking out loans.
Some companies, such as Lava.xyz, have begun to address this gap. However, its market share remains a small fraction of the volumes handled by existing DeFi platforms. (Watch the lava, it’s about to make waves in 2025!)
One quote from the original ad caught my attention:
Consolidating bitcoin-backed loans at Coinbase is “TradFi in front, DeFi in the back,” Max Bransborg, vice president of product at Coinbase, said in a statement. Cluster.
Let’s call it what it really is: centralized front, centralized back.
It’s time to leave these misleading offers behind and bring the 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: derivative loans backed by multisig on a central chain.
This article is a takes. The opinions expressed are entirely those of the author and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
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 shots. 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.
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