Earlier today, Coinbase name publication of “Bitcoin-Back Loans” using Base, its native blockchain. But there is one problem. (Actually, two.)
These loans are not backed by Bitcoin, nor are they even on the Bitcoin blockchain.
It is disappointing that in 2025, companies are still willing to leave out key information to trick Bitcoin holders into giving up their coins.
Here's the truth: these loans are collateralized by cbBTC, Coinbase's Bitcoin-wrapped product designed to compete with wBTC and tBTC. This is not Bitcoin. In fact, cbBTC is arguably the most centralized of these “covered” BTC tokens. To understand the trust assumptions associated with folding BTC, I recommend this excellent post by the Bitcoin rates team: Analyzing tBTC vs. wBTC and cbBTC.
This is the TL; DR:
“The BTC backing the cbBTC token is held in reserve wallets managed by Coinbase, a US-based centralized custodial provider. Coinbase keeps funds backing cbBTC in cold storage wallets across multiple distributed locations and additionally they have insurance on funds they hold. “
Furthermore, instead of issuing these loans on a blockchain even remotely related to Bitcoin (such as Bitcoin sidechains or Bitcoin L2s), Coinbase issues them through Morpho Labs , a DeFi platform described as AAVE's competitor. Although Morpho is an established platform – and I do not doubt its security – it has no connection to Bitcoin.
I, for one, look forward to seeing real Bitcoin-backed loans issued on the Bitcoin network itself. Many L2 teams are working hard to make this happen, trying to reduce trust assumptions – or even eliminate the need for bridging altogether (bullish!).
Why do we need native Bitcoin-backed loans in the first place? Consider this: many Bitcoiners today are against strict tax rules that impose heavy burdens on long-term holders who sell their Bitcoin to finance important purchases such as a house or a car. Borrowing backed by BTC allows individuals to trigger these tax events.
In addition, most Bitcoiners are convinced that the price of Bitcoin will be much higher in the future than it is today. So why would anyone sell an asset with such promising long-term potential? Bitcoin-backed loans allow holders to experience the upside of Bitcoin while accessing the liquidity needed to meet life's financial demands.
In today's market, the options for a Bitcoin-backed loan are limited. You can either rely on centralized companies (like the renowned team at Unchained) or turn to “DeFi” protocols, which are often centralized themselves and, in some cases, more risky than centralized options such as Unchained. But, not at the moment really Bitcoin's native solution – there is no option for Bitcoiners to hold onto their coins while accessing loans.
Some companies, like Lava.xyz, are starting to address this gap. However, their market share is still a small fraction of the volumes handled by existing DeFi platforms. (Watch Lava – they're set to make waves in 2025!)
One quote from the original release stood out to me:
“The integration of Bitcoin-backed loans on Coinbase is 'TradFi in the front, DeFi in the back,'” Max Branzburg, Coinbase's vice president of product, said in a statement to The Block.
Let's say what it really is: centralized in the front, and centralized in the back.
It's time to leave these fake offers behind and provide users with real Bitcoin Finance (BTCfi) – not just marketing words and half-truths.
Instead of saying: Bitcoin-backed chain loans we say: multisig-backed derivatives loans on a centralized chain.
This article is a Take. The views expressed are entirely those of the author and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.
Articles I write may discuss topics or companies that are part of my company's investment portfolio (UTXO instructions). The views expressed are solely my own and do not represent the views of my employer or its associates. I do not receive any compensation for these amounts. Readers should not consider this content to be financial advice or an endorsement of a particular company or investment. Always do your own research before making any financial decisions.
