Coinbase lending expands with new $1 million cbETH-backed USDC loans and rising regulatory tension

Amid rising regulatory friction in Washington, Coinbase lending is evolving with a new way for users to tap liquidity without unwinding long-term staking positions.

Coinbase launches cbETH-backed USDC borrowing product

The Nasdaq-listed exchange has introduced a borrowing feature that lets eligible customers access up to $1 million in USDC by pledging tokenized staked ether, known as cbETH, as collateral. However, the new product is only available in the United States outside New York, with limited access in the United Kingdom, according to the company website.

The service allows users to unlock liquidity without unstaking their ether, effectively turning staked holdings into a flexible funding source. Moreover, Coinbase positions this feature as a way for traders to finance large purchases, rebalance portfolios, or cover one-time expenses while keeping exposure to Ether and its staking rewards.

Under the new arrangement, customers borrow USDC against Coinbase’s representation of staked ether and keep their staking position active in the background. That said, loan eligibility and individual limits remain tied directly to the amount of eligible crypto posted as collateral and the platform’s risk parameters.

How Morpho powers the onchain lending structure

Coinbase emphasized that the loans are powered by Morpho, an onchain lending protocol that supports overcollateralized borrowing through smart contracts. Once a loan is approved, the system immediately credits funds to the user’s Coinbase account, while the pledged cbETH is transferred onchain to the third-party protocol.

According to Coinbase’s product description, borrowers can request up to $1 million in USDC, subject to standard loan-to-value requirements. Moreover, this integration with a decentralized platform means collateral management and liquidations are executed programmatically, aligning with broader DeFi practices instead of traditional, discretionary risk desks.

By using Morpho onchain lending infrastructure, Coinbase separates custody of user collateral from its central order books and exchange operations. However, the company still frames the experience as a familiar, in-app borrowing tool for customers who may not interact directly with DeFi protocols.

Loan-to-value constraints and liquidation risk

For risk control, Coinbase disclosed that borrowers must maintain a loan-to-value ratio below 86% to avoid automatic liquidation and associated penalties. The platform warns that this threshold could be tested during periods of intense volatility in the price of Ether, which tends to move more sharply than fiat currencies.

The design reflects typical crypto margin frameworks, where collateral buffers are larger than in conventional finance to account for rapid price swings. Moreover, users must actively monitor their positions and add collateral or repay principal if market conditions push their ratio toward the 86% limit.

In practical terms, this means anyone choosing to borrow against cbeth accepts the dual exposure of both borrowing costs and underlying asset volatility. That said, customers who manage leverage conservatively can continue earning staking rewards on their pledged tokens even while drawing liquidity.

Extending the utility of staked ether

Coinbase argues that taking cbETH as collateral effectively extends the utility of its staking program beyond passive yield generation. Users can convert part of their locked staking positions into spendable funds while still accumulating staking returns on the underlying ether.

This approach mirrors broader DeFi trends, where liquid staking tokens serve as both yield-bearing assets and building blocks in lending markets. Moreover, the company highlights potential use cases such as portfolio rebalancing, opportunistic crypto purchases, or meeting large, short-term cash needs without exiting long-term positions.

The strategy also positions Coinbase within a competitive field of crypto lending services that have historically catered primarily to institutions. In contrast, the exchange is opening a streamlined on-platform option for eligible retail users, subject to local regulatory restrictions and its internal risk framework.

Staking expansion across US states

The new borrowing feature follows Coinbase’s recent progress in expanding its staking footprint across the United States. Late last year, the company launched crypto staking services in New York after securing approval from the state’s Department of Financial Services, a key regulatory milestone.

As of now, Coinbase staking is available in 46 US states, with California, New Jersey, Maryland, and Wisconsin either limiting or blocking retail staking programs. Moreover, the company publicly praised New York’s decision, framing it as a sign of pragmatic oversight rather than outright hostility to digital assets.

“Thanks to Governor Kathy Hochul‘s leadership in embracing progress and providing clarity, this milestone marks a meaningful step forward,” Coinbase said. That said, the patchwork of state-level rules continues to shape where and how US customers can access staking and related borrowing tools.

Regulatory tensions around the Clarity Act

While Coinbase deepens its staking and lending offerings, the company is simultaneously at the center of a heated policy debate in Washington. As reported last week, the exchange’s CEO withdrew support for a draft version of the Clarity Act, a crypto market structure bill that has become a focal point for industry lobbying.

The move exposed divisions within the sector. Venture firm Andreessen Horowitz has backed the bill, even as Coinbase challenges parts of its framework. Moreover, the disagreement has raised questions about how unified the crypto industry can be when negotiating comprehensive regulation in the United States.

In a related development, Robinhood‘s CEO said staking remains one of the most requested features among his company’s users and urged the four holdout states to reconsider their bans. He argued on X that the US must craft legislation that protects consumers while still allowing innovation to move forward.

Impact on the market structure bill

“We support Congress’s efforts to pass the market structure bill. There is still work to be done, but we see a path and are here to help,” the Robinhood executive posted on X. However, political momentum has slowed as disagreements surface among major platforms.

The Senate Banking Committee recently delayed a vote on the bill after Coinbase announced its change of position in a public post on X. According to the company’s shareholder letter, stablecoins generated nearly 20% of its revenue, or $355 million, in the third quarter of 2025, underscoring the stakes around how these products are regulated.

A policy observer involved in the negotiations estimated a 40% chance that the market structure bill will ultimately pass. Moreover, he warned that constant revisions may push the compromise too far, asking pointedly: “The question is, how far can they bend this bill before it breaks?”

Coinbase’s fairness concerns and competitive landscape

In an interview with FOX Business, Coinbase’s CEO said the exchange’s main objection to the Clarity Act centers on competitive fairness. He argued that it would be “deeply unfair” for a single industry bank to leverage regulation to effectively ban its rivals instead of competing directly.

“They should have to compete on a level playing field, and I genuinely believe that,” he said, suggesting that certain legislative drafts risk entrenching incumbents. Moreover, this stance aligns with Coinbase’s broader push for what it calls clear but neutral rules that do not privilege specific intermediaries.

Against this backdrop, the rollout of cbeth collateral loans highlights how large exchanges are still innovating even as regulatory uncertainty persists. That said, the long-term viability of products like Coinbase crypto lending will likely depend on how Congress and regulators ultimately define permissible structures for staking, stablecoins, and onchain borrowing.

In summary, Coinbase’s new Morpho-powered USDC borrowing feature turns staked ether into a more flexible financial tool while regulatory debates over the Clarity Act, market structure, and consumer protection continue to shape the company’s operating landscape in 2025.