Circle has started a USDC loan service for institutional customers backed by bitcoin.

On Sept. 21 local time, blockchain media outlet Cointelegraph reported that Circle is offering its Digital Asset Backed Lending (DABB) service to institutional customers eligible to use Circle Mint.

Users can deposit bitcoin to mint cirBTC, Circle's wrapped bitcoin token, then post it as collateral on Arc or Ethereum-based supported lending markets and borrow USDC. The first supported protocol is Morpho, and Circle plans to expand support to Aave and others.

Borrowed USDC is deposited directly into the customer's Circle Mint balance. Borrowing rates, collateral requirements and liquidation standards are set by external lending markets. Circle said the loans operate on an overcollateralised basis, and collateral is supplied to third-party DeFi protocols through wallets controlled by customers. New York-area customers are excluded from the service.

The launch coincided with the release timing of Arc's layer-1 blockchain mainnet. Arc is a network for stablecoin payments and financial market infrastructure, and uses USDC as its native gas token. It also supports tokenised assets including BlackRock's BUIDL and Circle's USYC. cirBTC also went live on Arc from Sept. 21.

Circle previously launched cirBTC on Ethereum in June. The token is backed one-to-one by bitcoin held in custody by Circle National Trust. The new lending service effectively links cirBTC as an on-chain collateral asset for institutions.

Institutional crypto-collateral lending is also expanding. In February, Anchorage Digital partnered with Kamino to introduce a service that allows users to raise on-chain liquidity using staked Solana held at Anchorage Digital Bank as collateral. A feature is that collateral assets can be used while kept at a qualified custodian.

In March, Lombard and Bitwise began developing a system to borrow against bitcoin under custody. Morpho provided the lending infrastructure. Unlike Circle, which converts bitcoin into cirBTC for collateral use, the approach keeps bitcoin in custody without wrapping it or moving it to another blockchain.

BitGo also expanded its institutional lending business in March. It introduced a financial platform that allows borrowing and lending against liquid assets, staked assets and locked-up assets as collateral. A feature is that it is designed to let multiple assets be bundled into a single portfolio for collateral use.

The core of the service is that it enables institutional customers to secure USDC liquidity in on-chain lending markets without disposing of bitcoin. Circle is expanding cirBTC and Arc together, widening the scope of its own infrastructure linking stablecoins and tokenised assets.