Morpho

In brief

• Coinbase unveiled a lending product this week offering “competitive yields.”
• DeFi lender Morpho is currently subsidizing those rates.
• A Coinbase employee acknowledged that it’s a marketing tactic.

A lending product unveiled by Coinbase that offers up to 10.8% returns on USDC deposits is receiving a temporary boost from DeFi lender Morpho.

On X, Coinbase Head of Consumer and Business Products Max Branzburg said on Thursday that around 6% of the product’s returns stem from activity that takes place on Morpho’s platform, while an additional 5% is being “boosted” by the protocol itself.

In a statement to Decrypt, a Coinbase spokesperson confirmed that Morpho is currently augmenting the lending product’s returns, but it declined to say whether the arrangement was the product of a deal, or when the effective subsidy could end.

“While the interest rate always fluctuates and will climb or dip naturally over time, the current yield is elevated by the Morpho boost,” they said. “Morpho frequently deploys incentives to drive activity in their ecosystem, and this is part of that broader motion.”

Decrypt has reached out to Morpho for comment.

When Coinbase unveiled the lending product on Thursday, many people wondered where its competitive yields came from, whether through memes or posing the question directly. The intrigue, in many ways, is the product of contagion among crypto lenders in 2022.

The advertised return for Coinbase’s product is not nearly as eye-popping as the 20% returns once offered by Anchor Protocol before Terra’s ecosystem went belly up in 2022. As companies like Coinbase lean into on-chain lending products under crypto-friendly lenders, the pause among some onlookers indicates bad memories haven’t been entirely forgotten.

A blog post introducing Coinbase’s new lending product makes no mention of Morpho’s subsidy, which Branzburg acknowledged is for marketing purposes on X. A Coinbase spokesperson noted that the exchange has a help page explaining that Morpho’s lending rates can vary.

Morpho, which exists on Ethereum and Coinbase’s layer-2 scaling network Base, allows users to create markets for overcollateralized loans that are separate and customizable. For its product, Coinbase said that a firm called Steakhouse Financial is curating the “vaults” that users deposit funds into, or managing risk and allocating USDC to different markets.

Decrypt has reached out to Steakhouse for comment.

The only vault on Morpho tied to Stakehouse that exists Base had $24 million in USDC deposits on Friday, according to Morpho’s website. The vault offered an annual percentage yield of 5.87%, and is currently collecting a 25% performance fee.

The vault’s funds were supplied to markets for borrowing wrapped versions of Bitcoin and Ethereum, including Coinbase’s cbBTC and cbETH products, as well as WETH and wstETH. Over 98% percent of the vault’s funds were dedicated to the market for lending cbBTC.

The Coinbase spokesperson confirmed to Decrypt that the vault is tied to its product.



In a blog post, Morpho said Coinbase’s lending product dovetails with the exchange’s second rollout of crypto-backed loans earlier this year, which are also powered by the DeFi lender. (Coinbase stopped issuing crypto-backed loans under its Borrow service in May 2023, not long after receiving an enforcement threat from the SEC.)

“The two offerings complement each other perfectly: lenders provide liquidity that directly fuels crypto-backed loans,” Morpho said.

Coinbase users can already earn passive rewards on USDC held within their accounts, topping out at 4.5% APY for customers of its subscription-based membership. The dollar-pegged token is backed by cash and U.S. Treasuries, like most other stablecoins.

Several banking groups have called stablecoin rewards a “loophole” under legislation that was recently passed in the U.S., demanding that it be changed. Yet others see the prospect of yields as important for stablecoins to see adoption amid a competitive market.

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