Coinbase has broadened the list of digital assets that can be used as loan collateral, adding XRP, Cardano (ADA), Dogecoin (DOGE), and Litecoin (LTC). With this update, eligible U.S. customers can borrow up to $100,000 in USDC by locking up these tokens through Morpho, a decentralized lending protocol that powers the on-chain mechanics behind the product. Due to state-level regulations, the service is not available to residents of New York.
For crypto holders who want liquidity without selling their assets, this approach offers an alternative to spot liquidation, especially for those exploring XRP-backed or Dogecoin-backed borrowing.
How Crypto-Backed Loans on Coinbase Work
Users deposit supported cryptocurrencies into a smart-contract vault and borrow USDC against it, adhering to loan-to-value (LTV) limits. Borrowers repay the principal plus interest to retrieve their assets.
Coinbase provides the interface, while Morpho handles on-chain collateral verification and loan health. USDC loans via Coinbase-linked infrastructure have reached nearly $2 billion in volume, per blockchain data.
Initially supporting Bitcoin, the model expanded to Ethereum in late 2024 and later added XRP, ADA, DOGE, and LTC, significantly boosting the eligible collateral market value by $117 billion. Coinbase reported $17.2 billion in XRP custody by 2024’s end, reflecting strong demand for XRP-backed borrowing.
Liquidation Risk and Tax Considerations
Over-collateralized crypto loans face liquidation risks due to price volatility. If collateral value drops below thresholds, external participants can repay loans and claim collateral at a discount. Coinbase mitigates this risk with safety buffers and frequent borrower notifications, sometimes every 30 minutes. Future hedging tools may be added. Borrowers should note potential tax implications; converting tokens to wrapped assets can be taxable, and forced liquidations may create additional liabilities. Coinbase does not provide tax guidance, leaving reporting to users.
Why This Matters for DOGE and LTC Holders
For Dogecoin and Litecoin owners, these loans address a long-standing limitation. Unlike Ethereum or Cardano, neither asset supports native staking, leaving few options for generating utility without selling. Using DOGE or LTC as collateral allows holders to unlock liquidity while maintaining exposure to potential price upside.
That same logic applies broadly to crypto-backed loans: borrowing against an asset, rather than selling it outright, remains the central appeal for long-term holders seeking flexibility.
