Coinbase launches an on-chain USDC lending program with up to 10.8% APY, a significant increase from its previous rewards of 4.1%-4.5%. The news boosted Coinbase shares by 7%, while the product, operating on Morpho on the Base network, allows retail users to deposit funds via the Coinbase app for immediate yield. This has direct implications for crypto savers and competition among custodians and DeFi protocols.
Context and Impact
The mechanism creates a wallet per smart contract that channels deposits into vaults managed by Morpho and operationally overseen by Steakhouse Financial. Interest starts accruing immediately upon deposit, and users can withdraw at any time, subject to vault liquidity availability.
The service is currently active in the United States (excluding New York), Bermuda, Hong Kong, the UAE, New Zealand, the Philippines, Taiwan, and South Korea, and Coinbase plans to expand coverage in the coming weeks.
This move positions Coinbase as a bridge between traditional finance and DeFi, with potential to attract both retail and institutional users. Institutional participation in on-chain lending has risen 72% year-over-year, highlighting the strategic significance of the launch.
APY (Annual Percentage Yield) reflects annualized returns with interest compounding, so the 10.8% APY indicates effective annual yield on deposits.
Implications and Risks
The 10.8% APY offering may increase adoption of stable-yield products within Coinbase’s ecosystem, though with caveats: withdrawal capacity is “immediate in theory” but depends on vault liquidity, potentially causing variability in the user experience.
There are counterparty and technical risks, as the product execution relies on Morpho and Steakhouse Financial, introducing exposure to smart contract vulnerabilities users must consider.
Market competition intensifies: the yields are competitive against other platforms, but different profiles and conditions will influence user preferences and capital flows.
The regulatory framework will be critical, as international expansion and the use of USDC in payments and as collateral could attract greater scrutiny and require additional disclosures.
Key Points
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Yield offered: 10.8% APY, with interest accruing immediately upon deposit.
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Technology: Morpho + Base, with wallets per smart contract.
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Management: Steakhouse Financial oversees the vaults.
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Availability: multiple countries, excluding New York, with planned expansion.
Coinbase plans to expand product availability in the coming weeks, a key milestone to assess adoption and reach. The initiative represents an important step toward integrating on-chain yield within a centralized platform, with opportunities for adoption and operational risks that users must understand before participating.
