Earlier today, Coinbase revealed the introduction of “Bitcoin-Backed Loans” using Base, its in-house blockchain technology. However, there are two significant issues with this announcement.
These particular loans are not actually backed by Bitcoin, nor are they transacted on the Bitcoin blockchain.
It’s not acceptable that, in the year 2025, corporations are still deliberately withholding crucial information to deceive Bitcoin holders into relinquishing control of their assets.
The reality is that these loans are secured by cbBTC, a Bitcoin-wrapped asset created by Coinbase to rival wBTC and tBTC. It’s important to note that this is not actual Bitcoin. In fact, cbBTC is arguably the most centralized of all the “wrapped” BTC tokens. To grasp the trust implications of wrapped BTC, I recommend reading this insightful post by the Bitcoin Layers team: Analyzing tBTC Against wBTC and cbBTC.
Summarizing the key points:
“The BTC supporting the cbBTC token is retained in reserve wallets managed by Coinbase, a centralized custodial provider based in the US. Coinbase stores the funds supporting cbBTC in cold storage wallets spread across various locations and also has insurance coverage for the assets they hold.”
Furthermore, instead of executing these loans on a blockchain even remotely associated with Bitcoin (such as Bitcoin sidechains or Bitcoin L2s), Coinbase is conducting them through Morpho Labs, a DeFi platform positioned as a competitor to AAVE. While Morpho is a reputable platform—and its security is not in question—it lacks a direct link to Bitcoin.
I am eager to witness genuine Bitcoin-backed loans being issued on the actual Bitcoin network. Several L2 teams are diligently working towards making this a reality, focusing on reducing trust assumptions—or even eliminating the necessity for bridging altogether (bullish!).
Why do we need authentic Bitcoin-backed loans? Consider this: many Bitcoin holders currently encounter strict tax laws that impose substantial liabilities on long-term holders who liquidate their Bitcoin to finance significant expenses like a home or a vehicle. Taking out a loan backed by BTC enables individuals to avoid triggering these tax implications.
Additionally, most Bitcoin holders are confident that the value of Bitcoin will substantially increase in the future. So, why would anyone sell an asset with such promising long-term potential? Bitcoin-backed loans empower holders to maintain exposure to Bitcoin’s growth while accessing the liquidity required to meet financial obligations.
In the current market, options for Bitcoin-backed lending are limited. Individuals can either rely on centralized firms (such as the renowned team at Unchained) or turn to “DeFi” protocols, which can sometimes be centralized themselves and, in certain cases, riskier than centralized alternatives like Unchained. However, there is presently no genuinely Bitcoin-native solution—no avenue for Bitcoin holders to retain possession of their assets while securing loans.
Some entities, like Lava.xyz, are starting to address this gap. Nonetheless, their market share remains a small fraction of the volumes handled by established DeFi platforms. (Watch out for Lava—they’re poised for significant growth in 2025!)
It’s time to move away from these misleading offerings and introduce genuine Bitcoin Finance (BTCfi) to users—not just marketing jargon and partial truths.
Instead of referring to it as Bitcoin backed on-chain loans, let’s label it as multisig-backed derivatives loans on a centralized chain.
This article represents a Take. The opinions expressed are solely those of the author and may not necessarily reflect the views of BTC Inc or Bitcoin Magazine.
Articles I write may discuss topics or companies that are part of my firm’s investment portfolio (UTXO Management). The opinions expressed are entirely my own and do not represent the viewpoints of my employer or its affiliates. I do not receive any financial compensation for these opinions. Readers should not construe this content as financial advice or an endorsement of any particular company or investment. Always conduct your own research before making financial decisions.
