- Users lend crypto to the exchange and obtain collateral of higher value
- Coinbase can then offer its institutional clients secured loans
Cryptocurrency exchange Coinbase has launched a digital asset lending platform targeting large institutional investors, Reuters reported, citing a company spokesperson. It was revealed in a US Securities and Exchange Commission filing back on Sept. 1, which has emerged only now. By that date, $57 million had already been raised for the platform.
How it works
An insider shared that users can lend funds to the exchange, mostly crypto, and obtain collateral of higher value than their loan. This overcollateralization serves as a protective measure.
In turn, Coinbase can offer institutional clients secured loans, not unlike the prime brokerage service provided by traditional banks, the insider added.
Prospects of the new service
The premise of the service is not new. BlockFi and Genesis offered similar lending services in the US last year. They suffered huge losses last year, which contributed to their bankruptcies.
Differences to Lend program
The new lending service is not like Coinbase’s Lend program, which it canceled in 2021 following a series of controversies. The SEC had issue with the fact that it targeted retail customers. The latest platform is aimed at institutions, which means less regulation, because it’s assumed such large investors are more experienced and skilled.
The company spokesperson said:
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. 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.
Slight hope for crypto
The crypto industry has not had many reasons to rejoice lately, but not all is gloom and doom. Last week, a court ruled against the SEC’s rejection of Grayscale's proposed bitcoin ETF. The decision was overturned because SEC had not clarified its reasoning.
In August, Coinbase obtained approval to offer US retail clients cryptocurrency futures, which was another major regulatory victory.
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