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Circle launches Bitcoin-backed USDC borrowing, leaving liquidation risk with Morpho protocol
Circle launched a way to borrow USDC using Bitcoin as backing collateral, which is an asset pledged to secure a loan. Circle's workflow removes operational steps, but the third-party lender Morpho protocol keeps variable market terms and liquidation risk.
Published:
Updated:
What happened
Circle launched a way to borrow USDC using Bitcoin as backing collateral, which is an asset pledged to secure a loan. Circle's workflow removes operational steps, but the third-party lender Morpho protocol keeps variable market terms and liquidation risk.
Confirmed
Global impact / market context
Bitcoin holders can borrow USDC, a stablecoin meant to hold one dollar, without selling their Bitcoin. Because liquidation risk stays with Morpho, borrowers could lose pledged Bitcoin if its price falls and they cannot repay.
Analyst inference
This connects Bitcoin, USDC, and the Morpho lending protocol in decentralized finance, where loans run on blockchain software instead of banks. It shifts repayment and collateral risk away from Circle toward a third-party lender with variable terms.
Analyst inference
What to watch
- Circle's Mint workflow removes operational steps for Bitcoin-backed USDC borrowing, while variable market terms and liquidation risk remain with the third-party lender Morpho protocol. Confirmed
- Watch whether Circle or Morpho later adds clearer borrower protections or fixed loan terms, since the current setup leaves variable terms and liquidation risk with Morpho. Proposed
- If Bitcoin prices fall sharply, borrowers who pledged Bitcoin could face liquidation, meaning forced sale of collateral, which may pressure Bitcoin and affect Morpho's lending activity and the revenue companies earn from these loans. Analyst inference
Affected assets
- ETH — Ethereum
- DEFI — DeFi
- BTC — Bitcoin
- MORPHO — Morpho
- USDC — USD Coin