Coinbase Expands Collateralized Loans to Altcoins: "Liquidation Sensitivity a Key Variable" [Crypto Briefing]

[Financial News] Global crypto exchange Coinbase has expanded the range of collateral for its crypto-backed lending product beyond Bitcoin (BTC) and Ether (ETH) to major altcoins such as XRP, Dogecoin (DOGE), Cardano (ADA), and Litecoin (LTC). The move is aimed at boosting liquidity on the Coinbase platform while integrating Decentralized Finance (DeFi) infrastructure into regulated financial services. Users can pledge their crypto assets as collateral to borrow dollar-pegged stablecoins, but some observers warn that the high volatility of altcoins could significantly increase the risk of automatic liquidation in the event of sharp price drops.
According to the crypto industry on the 23rd, Coinbase’s new service is structured so that it does not use its own balance sheet. Instead, loans are executed on-chain through the DeFi protocol Morpho. When a user applies for a loan via Coinbase, the coins pledged as collateral are automatically managed through blockchain-based smart contracts.
As a result, U.S.-based users outside New York State can now use their altcoin holdings as collateral to borrow up to 100,000 dollars (about 140 million won) in USD Coin (USDC), a dollar-linked stablecoin. The maximum loan-to-value (LTV) ratio is set at 49%, and if the collateral value falls and the LTV exceeds 62.5%, the position is reportedly subject to automatic liquidation.
Given that Coinbase held roughly 17.2 billion dollars’ worth of XRP as of the end of last year, analysts expect potential loan demand to be substantial. Choi Yoon-young, a researcher at Hanwha Investment & Securities, noted, "As the loan market, which has been centered on Bitcoin and Ether, expands to large-cap altcoins favored by retail investors, Coinbase’s platform revenue model is likely to become more diversified."
However, the high volatility of the newly added collateral assets is seen as a key risk factor. Because these are crypto-backed loans, if the value of the pledged assets plunges, the system automatically liquidates positions based on preset thresholds. Earlier this month, during a sharp Bitcoin price correction, about 170 million dollars’ worth of collateral tied to Coinbase’s Morpho-linked loan positions was liquidated.
“Altcoins tend to fall faster and more sharply than Bitcoin, which makes automatic liquidation much more sensitive,” Choi explained. “The process of converting assets to another network through wrapping can also be interpreted as a taxable event, so managing tax risks will be a crucial factor for users,” she added.
In South Korea, the crypto industry has been operating under the Guidelines on Virtual Asset Lending by Virtual Asset Service Providers since September last year. In line with the financial authorities’ policy stance, the guidelines are enforced as a form of self-regulation by the Digital Asset eXchange Alliance (DAXA) and strictly limit leverage services that allow borrowing in excess of collateral value. Individual borrowing limits are also capped at roughly 30 to 70 million won.
While Coinbase is expanding the scope of its lending business by incorporating DeFi technologies, KRW Market-based crypto exchanges in Korea continue to follow a conservative operating approach. “Overseas, centralized exchanges (CEX) such as Coinbase are evolving by absorbing the efficiency of DeFi, but in Korea, resolving regulatory uncertainty remains the top priority,” an industry official said. “There needs to be legislative discussion to narrow the gap in global competitiveness,” the official added.

elikim@fnnews.com Kim Mi-hee Reporter