HomeCrypto UpdatesCoinbase Introduces Institutional Crypto Lending Service

Coinbase Introduces Institutional Crypto Lending Service

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Coinbase, the leading cryptocurrency exchange in the US, reportedly launched a crypto lending service targeting institutional investors. This information was first reported on CoinDesk, citing a U.S. Securities and Exchange Commission (SEC) filing and a knowledgeable source.

In a filing dated September 1st, Coinbase raised $57 million on August 28th to finance the development of the lending service. The launch of this strategic move was kept confidential until this week.

The new service allows institutional investors to lend their crypto assets to Coinbase. Coinbase will then use the assets to provide loans to other institutional investors. In return, the lenders receive excess collateral to secure the loan, which serves as a hedge against 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 previous attempt to offer a lending service in 2021 was rejected by the SEC. However, the earlier product focused on retail investors, while the new service is designed for large investors.

A spokesperson for Coinbase revealed the company’s ambitious goal to “update the financial system” by leveraging the power of cryptocurrencies. The aim is to create a financial system that provides individuals with greater economic freedom and more opportunities compared to traditional, legacy infrastructure.

This move comes amid Coinbase’s ongoing legal dispute with the SEC. Despite regulatory pressure, Coinbase continues to make progress, recently announcing the listing of PayPal stablecoin PYUSD and additional investment in USDC.

Now, Coinbase is exploring new ways to offer crypto tools for both large and small investors.

Moreover, Coinbase, the leading cryptocurrency exchange, has plans to decentralize its layer-2 scaling solution, Base. In August, the company announced its collaboration with the decentralized autonomous organization (DAO) Optimism Collective and OP Labs to transition Base into a fully decentralized model.

Base is an Ethereum layer-2 scaling solution that utilizes optimistic rollups to enhance transaction speed and efficiency. Since its launch in August 2023, Base has gained significant traction, attracting 100,000 users and achieving a total value locked (TVL) of $100 million in less than a month.

Reshaping Crypto Lending

The crypto market has not yet fully recovered from the credit crisis that affected several crypto lenders last year. Poor risk management during market volatility was among the reasons that led to the bankruptcy of major crypto lending firms Genesis and BlockFi.

In June 2022, BlockFi, once a prominent crypto lender, suspended withdrawals, swaps, and transfers due to uncertain market conditions. The company struck a deal with FTX to secure a $250 million revolving credit facility.

However, following FTX’s subsequent declaration of insolvency in November, BlockFi encountered financial difficulties. Eventually, the company filed for Chapter 11 Bankruptcy Protection after FTX’s collapse.

Genesis, another crypto lending company, also failed to overcome this major setback. The company allegedly halted new loan originations and redemptions in June 2022.

After months of struggle, Genesis filed for Chapter 11 Bankruptcy Protection earlier this year, reportedly incurring losses of a few hundred million dollars due to exposure to Three Arrows Capital (3AC), a crypto hedge fund that filed for bankruptcy in June 2022.

The issues faced by BlockFi and Genesis highlight the risks associated with crypto lending. The market remains cautious about crypto lending.

As Coinbase re-enters the lending landscape as a well-established player, there will be significant challenges and scrutiny due to recent events. Nonetheless, its new crypto lending offering has the potential to reshape the crypto lending landscape and set a precedent for other entities to follow.

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