With high-profile bankruptcies and regulatory actions disrupting the crypto lending industry, Coinbase Global is stepping in to fill the void.
According to a recent Bloomberg report, the U.S.-based exchange aims to attract institutional investors with its Regulation D exemption-based lending platform through its Prime service.
Critics have debated whether Coinbase’s move was brave or reckless, but Coinbase’s foray into this space is unlikely, especially after its previous setbacks in personal lending and its fights with regulators. It seems timely.
Coinbase seeks to fill the lending hole left by the likes of Genesis Global and BlockFi https://t.co/sEgmMV73Ch
— Bloomberg Crypto (@crypto) September 5, 2023
Second round of loans for institutional investors
Coinbase is no stranger to the lending market. The exchange previously launched a service called “Coinbase Borrow” aimed at individual customers by offering Bitcoin-backed loans.
But this Canceled in May. Despite previous setbacks, Coinbase seems eager to re-enter the lending space, but this time with a focus on institutional investors. According to recent information, filing Working with the U.S. Securities and Exchange Commission (SEC), customers have already poured $57 million into new lending programs. coinbase primea platform designed for trading and custody services for institutional investors.
Regulatory Challenges: Fine Lines
Coinbase is looking to get back into the lending business, but doing so in an environment of increasing regulatory scrutiny. In June of this year, Claimed by SEC The company makes unregistered offers and sales of securities through its staking-as-a-service program.
This has led to a group of US states calling for the suspension of these services. The fact that Coinbase’s new lending program is exempt from Regulation D may give some reprieve, but the crypto giants are still finding themselves walking a tough regulatory line.
Regulatory challenges are not unique to Coinbase. Crypto financiers such as the bankrupt Celsius Network, BlockFi, and Genesis Global faced risky bets that didn’t pay off, as well as devastating regulatory issues.
BlockFi’s bankruptcy saw a court grant $297 million back to customers with interest-free accounts, but Celsius is moving forward with a proposal to exit Chapter 11 as a new creditor-owned entity. Additionally, Genesis Global, which was owned by Digital Currency Group, is now under Chapter 11 bankruptcy protection.
As if regulatory oversight wasn’t enough, Coinbase must also grapple with operational issues. Its recently launched Layer 2 network, known as “Base,” suffered an outage for nearly two hours earlier this month. Although the issue was eventually resolved and was attributed to internal infrastructure problems, incidents like this are mainly seen when large sums of money are at risk, which can lead to loss of investor confidence. You may lose it.
Coinbase’s Base chain experienced its first major outage lasting 43 minutes. Block production has just resumed.
One more reminder that using Ethereum L2 (e.g. Arbitrum One, OP Mainnet, zkSync Era, Base) is not the same as using Ethereum mainnet. pic.twitter.com/JbUNQUGNwu
— Matt Willemsen (@matt_willemsen) September 5, 2023
Risky bet or timely action?
Coinbase’s entry into the cryptocurrency lending market, which has seen a recent spate of bankruptcies and heightened regulatory scrutiny, is undoubtedly a big bet for the company. Critics question whether such measures are wise in a volatile situation. Still, you can look at this another way. It’s a strategic move to position Coinbase as a stable and compliant platform in a market that desperately needs it.
Significant institutional investment has already flowed into the new loan program, with $57 million pledged so far, according to the application documents.
This suggests that the institutional sector is ready to extend a certain amount of trust to Coinbase’s latest efforts.
Experts say it remains to be seen if the trust will yield favorable results for investors, but one thing is clear: Coinbase is also not daunted by the daunting challenges of market volatility and regulatory uncertainty. It doesn’t seem like it.