How To Take Out a Loan Using Bitcoin as Collateral

Background:

Because of differences in blockchain networks, DeFi lending protocols like Compound and Aave don’t allow borrowers to use bitcoin directly as a form of collateral. Bitcoin operates on its own blockchain, while lending protocols like Compound and Aave run on Ethereum. This means you cannot directly use Bitcoin in its native form as collateral for a crypto loan. Instead, solutions like Coinbase Wrapped Bitcoin (cbBTC), Threshold Bitcoin (tBTC) and Wrapped Bitcoin (WBTC) bridge this gap by converting Bitcoin into Ethereum-compatible tokens.

You can learn more about Ethereum and how it works here

How to Use Bitcoin as Collateral With Rocko:

Start the Loan Process:

First, go to app.rocko.co and start the loan set up process. On the second page, you’ll be asked to select the type of collateral for your loan. Whether you select cbBTC, tBtc or WBTC is up to your preferences or where you hold your Bitcoin. For most U.S. Coinbase users, cbBTC will likely be the easier option as Coinbase auto converts BTC to cbBTC. Below, we’ve outlined the process for using either option.

Selecting cbBTC:

When you finalize your loan, you’ll be provided the address for your Rocko smart wallet and asked to transfer the cbBTC collateral for your loan to it as this is necessary for your loan to be fulfilled. For Coinbase users in most U.S. states and select countries abroad, you can transfer BTC directly from your Coinbase account to your Rocko wallet address and Coinbase will convert it to cbBTC for you. Follow the instructions outlined below:

Select to send BTC

Choose the network you wish to transfer on.

For loans from lending protocols on Mainnet, you will select Ethereum. For loans on Base, choose Base. If you’re unsure, you can verify the network in your loan summary before finalizing your loan.

Confirm

Transfer your BTC and receive cbBTC!

When you repay your loan, input your Coinbase account address as the destination for your cbBTC collateral. It will be automatatically transferred back into your Coinbase account where Coinbase will convert it back into BTC.

At its launch, cbBTC send & receive is available on Coinbase in the US (excluding New York State), UK, EEA states, Australia, and Brazil. For more information on cbBTC, you can review Coinbase’s guide.For Coinbase users who aren’t in an area eligible for cbBTC send & receive, you can purchase cbBTC from decentralized exchanges like Uniswap.

Selecting WBTC:

When you finalize your loan, you’ll be provided the address for your Rocko smart wallet and asked to transfer the WBTC collateral for your loan to it as this is necessary for your loan to be fulfilled. Many exchanges, such as Coinbase, allow you to buy WBTC which can then be transferred from the exchange to your Rocko wallet address and used as collateral for your loan.

Selecting tBTC:

Similarly, when you finalize your loan, you’ll be asked to transfer the tBTC collateral to your Rocko smart wallet. Once you complete minting your tBTC, deposit to your Rocko wallet during your loan booking process.

Summary

cbBTC, TBTC and WBTC can be great options to use your bitcoin as collateral for crypto-backed loans. They combine the value of characteristics of bitcoin with ERC-20 token standards so that you use them to access competitive rates from popular DeFi protocols like Compound and Aave.