Coinbase's Fixed-Rate Loans Create Deadline-Based Liquidation Risk

Coinbase has introduced fixed-rate Bitcoin-backed USDC loans through its partnership with Morpho Midnight. The new product locks in both the interest rate and repayment date at confirmation, making costs more predictable for borrowers.

However, this fixed repayment schedule creates a deadline-based liquidation risk. If a borrower's debt remains unpaid after maturity, their healthy collateral position can still be put at risk of liquidation, even if the loan-to-value ratio is healthy.

Morpho's rules allow post-maturity liquidation, which means that once the deadline has passed with outstanding debt, a liquidator can repay the debt and take the collateral. This separate trigger for liquidation is in addition to health-based liquidations, where falling collateral value or rising debt can prompt an earlier liquidation.

Coinbase sends maturity reminders seven days, three days, and 24 hours before a fixed-rate loan comes due. Borrowers must repay the full balance by the deadline, even if their loan-to-value ratio remains healthy.