tl;dr
Coinbase launched a lending product offering up to 10.8% returns on USDC deposits, partially funded by DeFi lender Morpho. Morpho contributes 6% of returns, with an additional 5% from its protocol, though terms and duration remain unclear. The partnership leverages Morpho’s Ethereum and Coinbase Bas...
**Coinbase’s Lending Product Gets a Boost from DeFi Lender Morpho**
When Coinbase unveiled its new lending product this week, offering up to 10.8% returns on USDC deposits, crypto enthusiasts were quick to ask: *How is this possible?* The answer lies in a partnership with Morpho, a decentralized finance (DeFi) lender that’s injecting a temporary boost to the yield.
According to Max Branzburg, Coinbase’s Head of Consumer and Business Products, around 6% of the product’s returns come directly from Morpho’s platform, with an additional 5% “boosted” by the protocol itself. While Coinbase confirmed the arrangement, it stopped short of confirming whether it was a formal deal or how long the subsidy would last. A spokesperson noted that Morpho’s incentives are part of its broader strategy to drive activity in its ecosystem, though the exact terms remain unclear.
The high yields have sparked both excitement and skepticism. While 10.8% sounds impressive, it pales in comparison to the 20% returns once touted by Anchor Protocol before its collapse in 2022. That event left a lingering caution in the crypto space, and Coinbase’s product isn’t immune to scrutiny. The company’s blog post for the lending product doesn’t mention Morpho’s role, a detail Branzburg later clarified on X was intentional for marketing purposes.
Morpho, which operates on Ethereum and Coinbase’s Base network, enables users to create customizable, overcollateralized loan markets. For Coinbase’s product, a firm called Steakhouse Financial curates the “vaults” where USDC is deposited, managing risk and allocating funds to various lending markets. One vault on Base, tied to Steakhouse, held $24 million in USDC as of Friday, offering a 5.87% annual yield. It’s also charging a 25% performance fee, a cut that’s likely part of the equation driving Coinbase’s elevated returns.
The vault’s funds are primarily funneled into borrowing markets for wrapped Bitcoin (cbBTC) and Ethereum (cbETH) tokens, including Coinbase’s own products. Over 98% of the capital is allocated to cbBTC lending, highlighting the growing demand for crypto-backed loans. Morpho has framed the partnership as a natural extension of Coinbase’s recent foray into crypto-backed loans, which it relaunched earlier this year after pausing the service in 2023 amid regulatory pressures from the SEC.
For Coinbase users, the new product adds to existing passive income opportunities. The exchange already offers up to 4.5% APY on USDC for paid members, a feature that has drawn criticism from banking groups. They argue that stablecoin yield programs exploit a loophole in recent U.S. legislation, but others see them as essential for driving adoption in a competitive market.
As the crypto space continues to evolve, partnerships like Coinbase and Morpho’s underscore the blurred lines between traditional finance and DeFi. While the temporary yield boost may fade, the underlying trend of leveraging decentralized platforms to enhance returns is here to stay. For now, users are reaping the benefits—but the question remains: how long will the “Morpho magic” last?