Coinbase has recently unveiled a new feature that allows users to earn significantly higher yields on their USDC holdings by tapping into the decentralized finance (DeFi) ecosystem. This new service integrates the Morpho lending protocol directly into the Coinbase app, offering users the potential to earn up to 10.8% APY on their USDC.

This move marks a significant step for Coinbase in bridging the gap between traditional cryptocurrency platforms and the burgeoning world of DeFi. By integrating with Morpho, one of the largest decentralized lending protocols in the crypto space, Coinbase is providing its users with easier access to onchain lending opportunities. Morpho currently has over $8.3 billion in total value locked (TVL), demonstrating the growing demand for onchain lending.

The integration is designed to be user-friendly, allowing individuals to lend their USDC without needing to navigate complex third-party DeFi platforms or wallets. When a user deposits USDC, Coinbase creates a smart contract wallet that connects to the Morpho protocol. Funds are then automatically routed across various lending pools on Base, Coinbase's Ethereum Layer 2 network, to optimize returns. This process is managed through onchain vaults curated by Steakhouse Financial, a DeFi advisory company.

Coinbase already offers passive rewards for holding USDC on its platform, with an APY of 4.1% (and up to 4.5% for Coinbase One members). The new DeFi lending option allows users to potentially more than double their earnings. According to Coinbase, the yields available through Morpho reached up to 10.8% as of Wednesday.

The USDC onchain lending feature is currently being rolled out to Coinbase users in the U.S. (excluding New York State), Bermuda, and several other international markets, including Hong Kong, the United Arab Emirates, New Zealand, the Philippines, Taiwan, and South Korea.

Coinbase emphasizes that while the new feature utilizes DeFi protocols, it is designed to provide a familiar and accessible experience for mainstream users. Users can start earning yield immediately and can withdraw their funds at any time, subject to liquidity. Coinbase also clarifies that this new lending feature differs from its existing "USDC Rewards" program. The "USDC Rewards" program is a customer loyalty initiative where payouts come directly from Coinbase's marketing budget and do not involve lending customer assets.

This initiative reflects the increasing interest in DeFi platforms, with a recent survey indicating that 40% of U.S. adults would be open to using such protocols if pending crypto legislation were enacted into law. By offering this new USDC lending feature, Coinbase aims to meet this growing demand and further integrate its users into the onchain economy.