Coinbase has announced that crypto loans will soon arrive on the platform: it will be possible to use Bitcoin (BTC) as collateral:
US customers in select states will soon be able to borrow 30% of your Bitcoin holdings in cash. Eligible customers are invited to sign up on the waitlist for early access on Coinbase today.
— Coinbase (@coinbase) August 12, 2020
According to the press release, Coinbase has decided to allow its users, first the US ones, to use their BTC to borrow up to 30% of the value and receive cash.
As stated, some US states, such as Alaska, Arkansas, Connecticut, Florida, Georgia, Illinois, Massachusetts, New Hampshire, New Jersey, North Carolina, Oregon, Texas, Virginia, Nebraska, Utah, Wisconsin, and Wyoming, are currently on the waitlist, while other countries aren’t yet.
How does the crypto loan work on Coinbase
When looking at the Italian page as an example, more details are available:
In Italy, the maximum amount that can be borrowed is $20,000 so to receive that amount we will need more than $66,000 in BTC, which is just under 6 BTC, on our Coinbase account.
While as far as the interest on this loan is concerned, an APR of 8% is applied. On other decentralized platforms, such as Compound or Aave, the loan using wBTC is less than half, 4% on Compound and 3% on Aave, so once again decentralization wins over centralization.
In addition, this loan lasts for a maximum of one year, so we will have to pay back the interest every month and it is possible to wait up to one year to pay back the entire loan.
The procedure for obtaining the loan is quite simple and almost automated: it takes just 3 days to complete the procedure since all the information has already been acquired and there is no need to provide other guarantees.
All that remains is to wait until the crypto loans provided by Coinbase are fully operational to see how they will be used by users and for what.
They could be used to buy more cryptocurrencies and, with the increased investment that is made, it might be possible to obtain more money and pay back the loan immediately.