Coinbase Launches New Crypto Lending Service To Capitalise On Gap Left By Genesis, BlockFi Bankruptcies

Updated: 06 September 2023

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Coinbase has created a new cryptocurrency lending service aimed at US-based institutional clients that seeks to capitalise on the gap in the market left by the bankruptcies of Genesis and BlockFi.

The new service has raised $57 million, according to a Securities and Exchange Commission filing on Sept. 1.

What is known about the new lending service?

Coinbase has maintained a tight-lipped stance regarding the launch of its new platform, but clients can lend money to the exchange — primarily cryptocurrency assets — and get collateral worth more than the loan’s value, CoinDesk reported, citing a source familiar with the matter.

Coinbase looks to re-enter the lending business with new institutional offering 👀 pic.twitter.com/ASYmsV5h7W

— Messari (@MessariCrypto) September 5, 2023

This is known as over-collateralization, which is common among crypto lending services, which aims at providing a safeguard, said the CoinDesk report.

Once the funds have been deposited, the exchange can make secured loans to institutional clients. The CoinDesk source said this is similar to how banks provide loans in traditional finance.

CoinDesk pointed out that Genesis and BlockFi offered similar services; however, both companies filed for bankruptcy in the aftermath of the FTX exchange’s collapse. While the companies were not directly involved with FTX, they both suffered massive losses, first during the crypto winter of 2022 and then during the market instability after FTX went down.

Their withdrawal from the market left a void in crypto lending services catering to institutional investors that Coinbase is now trying to fill

Coinbase tried to launch a lending service in the past

The US-based crypto exchange previously sought to establish a lending program, but cancelled it in 2021, the story said. That program was aimed at retail customers and was deemed controversial by the SEC, which objected to it.

The new service is different, as it is geared toward institutional investors, which are more experienced and sophisticated, CoinDesk reported. As such, the regulations are not as strict since institutions know how to handle high-risk programs, it added.

“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,” a Coinbase said in a statement. “Coinbase is working to update the financial system that was built over 100 years ago, leveraging crypto to provide people with more economic freedom and opportunity. To advance this purpose, Coinbase is building the most trusted crypto products and services, and supporting other builders to bring 1 billion people into crypto.”

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