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Before we get started, this is not a recommendation or endorsement to buy any token(s) mentioned.
This week, we cover a groundbreaking new form tokenized Bitcoin called cbBTC, recently launched by Coinbase. In this post, we'll break down what you need to know about cbBTC and how you can start using it in DeFi ecosystems on Ethereum Mainnet or Base.
On September 12, 2024, Coinbase launched cbBTC—Coinbase Wrapped BTC—an ERC20 token backed 1:1 by Bitcoin (BTC), custodied by Coinbase. With cbBTC, Bitcoin holders can now leverage their BTC in DeFi apps across multiple blockchains without having to trade or sell. To start, cbBTC will be live on both Ethereum Mainnet and the Base L2 network, with plans to expand to more chains, bringing even greater utility to Bitcoin to the DeFi world.
For many of us, Bitcoin was and still is the go-to entry point into the world of crypto, but it has historically faced limitations when interacting with DeFi ecosystems that operate on Ethereum and other chains. Now, with cbBTC, Bitcoin holders can seamlessly enter the Ethereum-based DeFi ecosystem while still holding onto the security and familiarity of BTC.
cbBTC bridges the gap between Bitcoin and DeFi by wrapping Bitcoin into a tokenized version, allowing it to function within DeFi apps as easily as any ERC20 token. This enables Bitcoin holders to tap into advanced DeFi opportunities like lending, yield farming, or using their BTC as collateral in onchain financial applications.
Using cbBTC is simple for existing Coinbase users. When you send BTC from a Coinbase account to a supported wallet address on Ethereum or Base, it’s automatically converted 1:1 into cbBTC. Whenever cbBTC is sent back to a Coinbase account, it’s automatically converted back to BTC, allowing us to move BTC value between ecosystems with zero friction.
One of the most exciting aspects of cbBTC is the broad support across various DeFi protocols. Here’s some of the applications who have already integrated cbBTC or are in development to support it soon:
Decentralized Exchanges (DEXs): Aerodrome, Curve, Matcha, Uniswap
Lending Platforms: Morpho, Moonwell, Spark, Aave, and Compound
Yield Vaults: Mellow, Veda
Cross-Chain Swaps: DeBridge, DeFinitive
Oracles and Risk Management: Chronicle Labs, Block Analitica, Gauntlet
Real-World Asset Tokenization (RWAs): Maple Finance
BTC Fee Hedging: Alkimiya
This wide-ranging support means that users can immediately start putting their cbBTC to work, whether it’s providing liquidity, earning yield, or borrowing against their cbBTC.
Today, I’ll cover a few simple ways I might get started earning onchain with cbBTC!
Three Ways to Farm with Coinbase’s New cbBTC
Before we get started, please be aware of these risks.
Smart contract risk in any related apps including Moonwell, Aerodrome, and Morpho
Front-end spoof attack on any app frontend
Withdrawal delays if assets lent are 100% utilized
An economic design exploit
Colluding signers on any multisig
cbBTC is backed 1:1 by BTC but the token could depeg so a user would need access to Coinbase to redeem a cbBTC for 1:1
There are controls to freeze cbBTC or blacklist wallet addresses. This is not an uncensorable token.
Systemic risk across DeFi
Here’s how I get started!
For this guide, we have 3 options available depending on my desire to lend passively, LP in a semi-correlated pair on Aerodrome but risk some impermanent loss, or create a leveraged position borrowing USDC, EURC, or WETH against cbBTC and risk liquidation.
First, let’s assume I have acquired some cbBTC on Matcha or via my own Coinbase account, and I’m looking to lend cbBTC to borrowers on Moonwell on Base.
I must connect my Base wallet.
Go to this cbBTC market here.
Specify how much cbBTC to supply and follow the prompts to Approve and Supply.
The current lending rate is 0% but there’s expectations that will ramp soon as demand for borrowing cbBTC rises.
Next, I can opt to become a cbBTC / WETH LP or a cbBTC/USDC LP on Aerodrome, the leading concentrated AMM on Base.
I must connect my Base wallet here.
I can opt to be an LP in the USDC/cbBTC LP but if I do, I’m likely to experience impermanent loss, meaning whatever ratio I deposit for these 2 tokens is likely to change as the price of cbBTC/USDC changes.
The upside here is I’m earning huge compensation in AERO tokens because veAERO holders are bidding for the trading fees on this pool by allocating larger AERO rewards to me as an LP. I could also opt for the WETH/cbBTC LP which is likely to be a little less volatile given the semi-correlation between the price of WETH vs cbBTC.
Let’s assume I choose the CL100-WETH/cbBTC LP here and follow the prompts to try and earn 363% APR.
I’ll choose the Price Range for “Common” to keep my concentrated LP within range of the actual price.
I follow the prompts to Approve + Deposit both tokens WETH and cbBTC and then look to collect / claim AERO rewards every week. All yield here is denominated in AERO–veAERO lockers get all the trading fees and bribes.
Lastly, I can borrow against cbBTC collateral in USDC, EURC, or WETH and potentially create a levered position. This only makes sense if I’m wanting to not sell cbBTC and borrow against it (up to 86%-91.5% LTV).
I go to the Borrow tab on Morpho flipped to Base network here.
Then, choose a vault for opening a position with cbBTC as collateral.
And follow the prompts to deposit cbBTC collateral and borrow the loan in any of these 3 tokens.
That’s it! I’ve searched far and wide for better yields on cbBTC but these are the best we have to offer onchain given the recent launch of cbBTC.
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