Coinbase fills gap left by Genesis and BlockFi collapse

abdelaziz Fathi

Coinbase is launching a digital asset lending platform aimed at deep-pocket investors. This new crypto lending service in the U.S. for institutional clients could help fill the gap left by the struggles of lending desks like Genesis and BlockFi.

Coinbase CEO Brian Armstrong

Coinbase new platform was quietly revealed in a U.S. Securities and Exchange Commission filing on Sept. 1, which disclosed that $57 million had already been raised for the program.

With this new service, clients can lend money to Coinbase, primarily in the form of crypto assets, and receive collateral that exceeds the value of the loan. This overcollateralization serves as a safety net against potential losses. America’s largest crypto exchange can then provide secured loans to its institutional trading clients, similar to the prime brokerage services offered by traditional banks in the financial sector.

This initiative differs from Coinbase’s controversial Lend program, which was canceled in 2021 and targeted retail customers, drawing objections from the SEC. The latest lending service is geared toward institutions, which typically face less onerous regulatory requirements due to the presumption that large investors have the sophistication to handle such risky products.

The US regulators signaled a big change in policing cryptocurrencies and the growing Defi sector after they blocked Coinbase from launching a new crypto lending product two years ago. The SEC officials have increasingly been talking about a need to crack down on these products, which are essentially unregistered interest-bearing accounts, the agency claims.

The use cases presented by major players reflect that the lending trends are shifting to a reliance on digital assets to support business’ operations rather than for only betting on the short term price moves. Specifically, recent data shows substantial interest from the institutional players to borrow in order to facilitate a specific strategy such as for shorting, arbitrage, or working capital purposes.

SEC’s probe into DeFi products comes amid heightened regulatory interest in cryptocurrencies and the digital asset market. Chair Gary Gensler called on Congress to give the agency more authority to better police crypto trading and lending platforms, which pay customers rates higher than most bank savings accounts.

Earlier in July, Coinbase told its customers from California, New Jersey, South Carolina, and Wisconsin that they will no longer be able to stake digital tokens on its platform until further notice. The SEC alleges that the listed company broke securities law by acting as an unregistered broker and failing to register as an exchange. Additionally, the agency classified Coinbase Earn’s staking program, which allows investors to earn interest on their tokens, as an unregistered security.

In a coordinated effort, regulators from 10 states also filed charges against Coinbase on the same day. These regulators argue that Coinbase’s staking services should be considered securities under state laws.

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