Coinbase is introducing a new method for users to earn yields on their USDC holdings, representing one of the exchange’s first significant integrations with decentralized finance (DeFi) amid increasing stablecoin adoption.
The company revealed on Thursday that it is incorporating the Morpho lending protocol, with vaults designed by DeFi advisory firm Steakhouse Financial, directly within the Coinbase app. This integration will enable users to lend USDC (USDC) without needing to navigate through third-party DeFi platforms or wallets.
Currently, Coinbase offers rewards of up to 4.5% APY for holding USDC on its platform. With this new DeFi lending option, however, users can access on-chain markets and potentially earn yields of up to 10.8%, as reported by Coinbase on Wednesday.
“Coinbase is solely integrated with the Morpho lending protocol for this feature,” a company spokesperson stated to Cointelegraph. “We encourage users to be aware of the risks associated with lending, which are detailed in the Coinbase app.”
Morpho is one of the largest decentralized lending protocols in the cryptocurrency space, boasting over $8.3 billion in total value locked (TVL), according to DefiLlama. The protocol’s dollar-denominated TVL has surged this year, highlighting a rising demand for on-chain lending.
The integration of Morpho with Coinbase coincides with rising interest from Americans in utilizing DeFi platforms, aided by a more favorable regulatory environment. A recent survey of 1,321 US adults conducted for the DeFi Education Fund lobby indicated that 40% would be open to engaging with such protocols if forthcoming crypto legislation is enacted into law.
Among institutional investors, DeFi lending has risen by 72% year-to-date, as per Binance Research.
Related: The intersection of DeFi and AI calls for transparent security
Stablecoin yield ban under scrutiny as industry challenges perceived GENIUS Act loophole
DeFi lending for yield is distinct from simply accruing passive interest on stablecoin holdings — a point that has garnered increased attention following the enactment of the US GENIUS Act, which explicitly prohibits yield-bearing stablecoins.
In August, the Bank Policy Institute (BPI) — a lobbying organization supported by major US banks — urged regulators to address what it identified as a loophole that might allow exchanges or affiliates to offer yields through third-party partners.
“Bank deposits serve as a crucial funding source for banks to extend loans, whereas money market funds are securities that invest and eventually provide yield. Payment stablecoins fulfill a different role, as they neither provide loans nor are categorized as securities,” the BPI asserted in a statement.
This opposition arises as stablecoin adoption speeds up, with the circulating supply recently exceeding $300 billion, according to CoinMarketCap.
In contrast, Coinbase dismissed assertions that dollar-pegged stablecoins threaten traditional banking structures. “Stablecoins do not undermine lending — they provide a competitive option against banks’ $187 billion annual swipe-fee profits,” the exchange wrote in a blog post on Tuesday.
Related: Crypto Biz: IPO fever, Ether wars, and stablecoin showdowns
