Bitcoin as Collateral: Unlocking Liquidity for Holders

Bitcoin holders have found new ways to access liquidity without selling their coins. Instead of selling, they can pledge their BTC as collateral for loans and receive stablecoins or other assets.

The model has expanded from centralized lenders into on-chain protocols, where wrapped Bitcoin and native-BTC systems allow the asset to be used across DeFi platforms.

For example, Coinbase provides access to loans through the Morpho protocol on Base. When borrowing against BTC, the platform converts it into cbBTC and deposits it into a Morpho smart contract as collateral. Eligible users can borrow up to 5 million USDC against their Bitcoin.

The interest rates for these collateral-based loans are variable and respond to supply and demand in the underlying lending market. Unlike traditional bank lending, they do not require credit checks.