Coinbase, the US leading cryptocurrency exchange, has reportedly launched a crypto lending service targeting institutional investors. The new product was first reported on CoinDesk, citing a U.S. Securities and Exchange Commission filing and a source familiar with the matter.
According to September 1st’s filing, Coinbase initially raised $57 million on August 28th to fund the development of the lending offering. The strategic move was kept under wraps before breaking out this week.
With the new service, institutional investors can lend their crypto assets to Coinbase; which will then use those assets to provide loans to other institutional investors. In return, they get excess collateral to secure the loan. This risk mitigation strategy serves as a hedge in the event of significant fluctuations.
“With this service, institutions can choose to lend digital assets to Coinbase under standardized terms in a product that qualifies for a Regulation D exemption,” said a media source.
Bigger Investors Want Into Crypto
Coinbase’s initial attempt to offer a lending service in 2021 was rejected by the SEC. The previous product, however, targeted retail investors while the new service is aimed at large investors.
Coinbase spokesperson additionally revealed the company’s ambitious goal to “update the financial system” by harnessing the power of cryptocurrencies. The idea is to use crypto assets to create a financial system that offers individuals greater economic freedom and a wider range of opportunities compared to the traditional, legacy financial infrastructure.
The move came amid the firm’s ongoing legal dispute with the SEC. Despite regulatory pressure, Coinbase has shown many developments. The company recently announced the listing of PayPal stablecoin PYUSD and the additional investment in USDC.
Now Coinbase is looking for new ways to offer crypto tools, including options for both large and small investors.
Coinbase, the leading cryptocurrency exchange, has revealed plans to decentralize its layer-2 scaling solution, Base. The company announced in August that it has been working with the decentralized autonomous organization (DAO) Optimism Collective and OP Labs to transition Base to a fully decentralized model.
Base is an Ethereum layer-2 scaling solution that uses optimistic rollups to improve the speed and efficiency of transactions. It was launched in August 2023 and quickly gained traction, reaching 100,000 users and a total value locked (TVL) of $100 million in less than a month.
Reshaping Crypto Lending
The crypto market has yet to completely recover from the credit crisis across several crypto lenders last year. Poor risk management under market volatility was among the reasons that sent two major crypto lending firms Genesis and BlockFi to bankruptcy.
BlockFi, a formerly prominent crypto lender, froze withdrawals, swaps, and transfers in June 2022, citing uncertain market conditions. The firm reached a deal with FTX to provide a $250 million revolving credit facility.
However, since FTX declared insolvency later in November, BlockFi faced financial struggles. The company eventually filed for Chapter 11 Bankruptcy Protection following FTX’s collapse.
Genesis, another crypto lending company, also failed to survive the major setback. The company allegedly halted new loan originations and redemptions in June 2022.
After several months of struggle, Genesis filed for Chapter 11 Bankruptcy Protection earlier this year. Genesis reportedly faced losses of a few hundred million dollars due to its exposure to Three Arrows Capital (3AC), a crypto hedge fund that filed for bankruptcy in June 2022.
The problems at BlockFi and Genesis are a reminder of the risks involved in crypto lending. To date, the markets are still nervous about crypto lending.
While Coinbase re-enters the lending landscape as an established player, there are significant challenges and scrutiny given recent events. Still, its new crypto lending offering has the potential to reshape the crypto lending landscape and set a precedent for other entities to follow.
