Following the catastrophic failures of crypto lending firms like Genesis and BlockFi amid a lack of liquidity caused by the bear market of 2022, cryptocurrency exchange company Coinbase Global is stepping in to address the void left by these companies.
The crypto giant is introducing a digital asset lending platform focusing on catering to large institutional investors. This lending platform will seamlessly integrate into their existing service known as Coinbase Prime allowing users to receive up to $1 million through a Bitcoin (BTC) collateral.
It offers a unique feature where clients can lend funds to Coinbase, primarily in the form of cryptocurrency assets, and, in return, receive collateral that surpasses the value of the loan. This over-collateralization serves as a protective measure to mitigate potential losses.
Coinbase will then utilize these acquired funds to provide secured loans to institutional trading clients, a concept reminiscent of the prime brokerage services traditionally offered by conventional banks.
This development has garnered significant interest from investors, with a recent filing submitted to the U.S. Securities and Exchange Commission (SEC) revealing that Coinbase has already attracted $57 million in investments for this program. As of September 1st, five investors have already participated.
This initiative by Coinbase comes after it halted its loan issuance on Coinbase Borrow in May 2023. Coinbase Borrow allowed users to borrow funds from the exchange, with collateral backed by up to 40% of their Bitcoin holdings, up to a maximum limit of $1 million.
These developments are occurring in the backdrop of Coinbase grappling with legal challenges and regulatory scrutiny from the U.S. Securities and Exchange Commission (SEC). The SEC had accused Coinbase of offering and selling unregistered securities through its crypto-staking services. Coinbase has since contested these allegations but is embroiled in a legal battle with the SEC.