In brief
Steakhouse, a curator on Morpho, is sharing performance fees with Coinbase.
The fees are derived from user repayments toward Bitcoin-backed loans.
People are tapping the product to pay for cars and home improvements.
Coinbase’s newest lending product is generating profits for the crypto exchange in several ways, but not all are reflected clearly on-chain.
As the firm lets customers deposit wrapped Bitcoin and Circle’s USDC into “vaults” on decentralized finance protocol Morpho, it’s earning cash from stablecoin reserves and transaction fees indirectly. It’s also taking a cut of performance fees that are designed to incentivize risk managers on the platform, Coinbase has confirmed to Decrypt.
DeFi offers the promise of a more transparent financial system, but it’s unclear whether the arrangement poses conflicts of interest or could potentially put user funds at greater risk. Coinbase says that the initiative is addressing investors’ growing appetite for ways to use digital assets, unlocking financial empowerment.
In a statement to Decrypt, a Coinbase spokesperson said that the company “is committed to the sustainable success of its products.”
“We firmly maintain this philosophy when searching for collaborators that can help us bring simple, secure on-chain financial products to our users.”
The specifics of Coinbase’s arrangement with a so-called curator on Morpho named Steakhouse, through which users are effectively paying the exchange, are not referenced in an FAQ for its product. The FAQ does say that “there are no Coinbase fees,” and interest rates are set by “open lending markets.”
Vaults on Morpho allow Coinbase users to do two things: They can post Bitcoin as collateral for loans, or they can deposit USDC to earn yield. In essence, it resembles a circular market, which crossed $1 billion in originations on Tuesday.
As users make payments toward loans, a percentage of the yield that vaults generate is directed to “curators,” who serve as chief risk officers and strategists, according to Morpho’s documentation. It’s called a performance fee, and it’s customizable vault-to-vault.
The vault with the most deposits on Morpho is curated by a DeFi project called Spark. It is providing liquidity for Bitcoin-backed loans on Morpho, while taking a 10% slice of the 6% APY (annual percentage yield) that around $700 million in USDC deposits is currently generating.
Steakhouse, meanwhile, is curating a vault that currently lets Coinbase users earn 5.6% APY on USDC. Most of those funds are going toward providing liquidity for Bitcoin-backed loans as well, but the vault collects a 25% performance fee, among the highest on Morpho.
Steakhouse and Coinbase “share” the fee, the Coinbase spokesperson confirmed to Decrypt.
“Steakhouse USDC was selected as a starting vault on account of its collateral exposure being generally very liquid crypto assets which—along with the overcollateralization of the loan positions—creates an additional buffer for lenders,” they added, while highlighting an overview of Steakhouse’s risk management framework.
Decrypt has reached out to Steakhouse for comment.
‘Scale Infinitely’
As firms across the U.S. are integrating DeFi into their businesses, some onlookers are comparing the trend to mullets—centralized in the front, yet permissionless in the back. Morpho itself made the comparison on X on Thursday.
From Coinbase’s perspective, it’s acting as a
Backed Loans as a ‘Technology Provider’
