Circle launched Digital Asset-Backed Borrowing for Circle Mint’s institutions, enabling these institutions to use BTC as collateral against their USDC liquidity while remaining in control of their BTC rather than selling it. It was announced in a September 21 statement discussing Circle Mint’s support of several third-party decentralized lending markets on Arc and Ethereum.
Users who deposit native Bitcoin mint Circle Wrapped Bitcoin (cirBTC), which the institution moves to a user-controlled Smart Wallet, posts it as collateral on supported lending protocols, and borrows USDC against the collateral. The borrowed stablecoins are then automatically transferred from the wallet to the customer account at Circle Mint.
Morpho was the first lending protocol supported by the protocol at the time of launch. Circle states that others, including Aave, are expected to follow but has not announced if or when any will be added. The lending markets are over-collateralized, with interest rates, collateralization ratios, liquidation values, and liquidity set by each market.
Repayments are done the same way; customers can send USDC from Circle Mint into the Smart Wallet in order to pay back part or all of their debt. The debt is then reduced, and the collateral is freed according to the rules of the underlying protocol. Circle does not lend or control liquidations, however.
Circle’s terms of service distinguish between assets held within Circle Mint and Circle’s deployment of assets into DeFi. Digital Asset-Backed Borrowing is provided by Circle Technology Services via its interface and Smart Wallet technology. Lending and collateral management are handled by third-party protocols and smart contracts, while assets in the Smart Wallet are no longer within the regulated activities of Circle Mint.
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The Smart Wallet uses a two-of-two multiparty computation key management model. According to Circle, customers retain control of the wallet, and the company cannot authorize or reverse user blockchain transactions. Borrowers must also monitor the collateral and the terms of the protocol to avoid exceeding liquidation limits.
cirBTC bridges the native Bitcoin network with any smart contract-enabled network for lending. Circle states that all cirBTC is 1:1 collateralized with BTC and onchain verifiable by third parties. This wrapped asset is cross compatible with both Arc and Ethereum, allowing institutions to maintain exposure to Bitcoin backing their position, while utilizing dollar-denominated liquidity.
The service is currently only available to institutional Circle Mint customers who are in compliance with the relevant jurisdiction. Circle Mint accounts are not available to individuals and are not available to New York customers. Circle points to smart-contract, oracle, liquidity, and market risks from engaging in DeFi activity.
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The launch builds upon Circle’s institutional infrastructure for USDC and cirBTC, with credit backed off-chain by regulated Mint custody, and provides Bitcoin-treasury institutions with direct access to wrapped collateral and borrowed USDC while leaving rates and liquidations unchanged on the selected DeFi-enabled money market.
