Coinbase’s Crypto-Backed Lending Product Expands to XRP and DOGE

Coinbase signaled on Wednesday that its crypto-backed lending product is expanding in the U.S., unveiling support for XRP, Dogecoin, Cardano, and Litecoin.

By posting their holdings as collateral on decentralized finance protocol Morpho, customers can borrow up to $100,000 in Circle’s USDC stablecoin, the exchange said on X. The service is available throughout the U.S., excluding New York, Coinbase added.

It marks a continuation of Coinbase’s efforts to broaden the product’s appeal, as it approaches $2 billion in originations, according to a Dune dashboard. The product began accepting Ethereum in November, after accepting Bitcoin more than a year earlier.

XRP, Dogecoin, Cardano, and Litecoin had a combined market cap of $117 billion on Wednesday, CoinGecko data shows. Although that was less than half of Ethereum’s total value, the assets have been popular among retail investors in recent years.

Coinbase has positioned the product as a way for customers to grow their wealth in ways that they otherwise couldn’t. That pitch has centered around DeFi’s ability to augment Coinbase’s business, but it also speaks to what those digital assets are capable of natively.

Ethereum and Cardano can be staked natively on their respective networks, allowing users to earn rewards by validating transactions. 

That isn’t the case for XRP, Dogecoin, and Litecoin—making crypto-backed lending one of the few ways for holders to generate liquidity without selling their positions.

That could be a big unlock for Coinbase. The exchange reported last week that it held $17.2 billion in XRP on its platform, as of Dec. 31, according to an SEC filing.

Crypto-backed loans allow investors to access liquidity from appreciated assets without triggering immediate capital gains taxes, in theory. However, liquidations can create tax obligations, according to law firm Greenspoon Marder LLP.

Liquidations occur on Morpho when the value of a user’s collateral falls too much relative to the amount they borrowed. Once a certain threshold is reached, a user’s loan is deemed unhealthy, allowing third parties to pay it back and gain the associated collateral at a discount.  

What’s more, assets posted as collateral through Coinbase’s product are wrapped. Although that process allows assets like XRP to exist on networks like Ethereum, swapping a crypto for its wrapped version is treated as a taxable event in the U.S.

Coinbase noted on X that crypto-backed loans face liquidation risk, and it does not provide tax advice. 

Still, when liquidations flared on Feb. 6 while Bitcoin and Ethereum tumbled, a Coinbase spokesperson told Decrypt at the time that it “enforces an additional buffer when users take out a loan to reduce liquidation risk.” It also notifies borrowers as that threshold is approached, up to every 30 minutes, they said.

They added that the exchange is exploring additional ways for users to protect their loans. Around that time, $170 million worth of crypto-backed loans had been liquidated over a seven-day period, Decrypt previously reported.