Wrapping native assets like XRP for use on Base may constitute a taxable event under current U.S. tax rules.
Coinbase onchain loans have expanded to include four new cryptocurrencies as eligible collateral. XRP, Dogecoin (DOGE), Cardano (ADA), and Litecoin (LTC) holders in the U.S. can now borrow up to $100,000 in USDC.
The loans run through the Morpho lending protocol on Base, Coinbase’s Ethereum layer-2 network. Users post their crypto holdings as collateral and receive USDC without selling their assets. New York residents remain excluded from the service at this time.
Coinbase originally launched its onchain loan product with Bitcoin support before adding Ether. That early offering allowed BTC holders to borrow up to $5 million and ETH holders up to $1 million in USDC. The product has now crossed $1.9 billion in total loan originations since its launch.
The four newly added assets carry a lower borrowing cap of $100,000 each. Their combined market capitalization stood at around $117 billion at the time of the announcement, according to CoinGecko data.
That figure is less than half of Ethereum’s total market value, though all four coins maintain a consistent retail following.
Jacob Frantz, product lead at Coinbase, explained the thinking behind the move:
“No matter what you’re holding, you should be able to leverage your crypto without having to sell. Being able to borrow against more tokens means more opportunity to make your crypto work for you.” — Jacob Frantz, Product Lead, Coinbase
Coinbase has indicated plans to extend the service internationally in the future.
The loan-to-value ratio, or LTV, is central to how these loans operate. It measures loan size against the current market value of the posted collateral. As collateral prices drop or interest builds, the LTV rises accordingly.
Bitcoin and Ether borrowers can access up to 75% LTV, with liquidation triggering at 86%. XRP, DOGE, ADA, and LTC holders face tighter terms, borrowing up to 49% LTV, with liquidation set at 62.5%. The stricter limits reflect the higher price volatility these altcoins carry compared to Bitcoin and Ether.
There is no fixed repayment schedule attached to these loans. However, borrowers must keep their LTV below the liquidation threshold at all times.
Coinbase sends alerts as frequently as every 30 minutes as a borrower’s ratio approaches the danger zone, providing an added layer of risk management.
Crypto-backed loans are often seen as a way to avoid triggering capital gains taxes. Since no sale occurs, the tax event is deferred. That said, liquidations can create taxable events, according to law firm Greenspoon Marder LLP.
There is also a wrapping issue to consider. Assets like XRP are wrapped before use on Base, Coinbase’s Ethereum-compatible network.
Under current U.S. tax rules, converting a native asset to its wrapped version counts as a taxable event. Coinbase has acknowledged this and noted it does not provide tax advice.
One additional restriction applies to loan proceeds. Borrowers cannot use the USDC received to trade on the Coinbase exchange.
This steers users toward practical uses, such as covering expenses or making purchases, rather than leveraged speculation.
Interest rates on Morpho markets fluctuate based on supply and demand within each lending pool, so rates are not fixed at the time of borrowing.
