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Crypto

Bitcoin as Collateral: Unlocking Liquidity in DeFi

Guavy AI Editorial Team
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BTC USDC
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Bitcoin holders can now access liquidity without immediately selling their BTC by pledging it as collateral for loans. The model has expanded from centralized crypto lenders to on-chain protocols, where wrapped Bitcoin and newer native-BTC systems are making the asset usable across DeFi.

A borrower locks in BTC worth more than the loan amount, receives stablecoins like USDC, and pays interest until the debt is repaid. Coinbase provides access to loans through the Morpho protocol on Base, using Coinbase Wrapped BTC (cbBTC) as collateral. Eligible users can borrow up to 5 million USDC against Bitcoin.

Unlike conventional bank lending, these collateral-based loans do not require a credit check. Interest rates are variable and respond to supply and demand in the underlying lending market.

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