Coinbase
(Nasdaq: COIN) has recently introduced a new crypto lending service in the
United States, primarily targeting institutional clients. This development
comes as a response to the challenges faced by other companies like Genesis and
BlockFi, which experienced significant losses in the past.
The
announcement was made through a U.S. Securities and Exchange Commission (SEC)
filing on September 1st, revealing that Coinbase had already raised $57 million
for this new lending program.
Clients,
who are predominantly institutional investors, can lend money to Coinbase, with
crypto assets being the primary form of collateral. In turn, Coinbase provides
collateral to these clients, typically exceeding the value of the loan. This
overcollateralization serves as a safeguard to protect against potential
losses. Coinbase then uses the funds obtained from clients to offer secured
loans to other institutional trading clients. This service is akin to
traditional prime brokerage services offered by banks in the world of
traditional finance.
Abandoning Controversial
‘Lend’ Program for Retail Customers in 2021
Back
in September 2021, Coinbase’s CEO Brian Armstrong revealed that the SEC had
threatened to sue the exchange if it proceeded with the launch of its product
called ‘Lend’. Coinbase subsequently made a quiet update to a June
blog post, indicating that they would not be launching the “USDC APY
program” that was originally planned.
The ‘Lend’ product was intended to support a crypto savings account that
would offer customers an annual percentage yield (APY) of 4%, which is a significantly
higher return compared to most traditional bank savings accounts. However,
regulatory concerns and potential legal action from the SEC led Coinbase to
abandon this initiative.
The controversial ‘lend’ program was designed for retail customers and cancelled in 2021 following
objections from SEC officials. The current lending service is tailored
specifically for institutional clients, and it is presumed that such investors
have the necessary sophistication to navigate the regulatory landscape
effectively.
Regulatory Ambiguity and
Conflicting Positions: Coinbase’s Defense Strategy
According
to a report by Finance Magnates in August 2023, the SEC had
accused Coinbase of running its crypto trading platform illegally and selling
unregistered securities, alleging that the exchange improperly bundled
exchange, broker-dealer, and clearinghouse services, contrary to securities
regulations. Coinbase was set to challenge the SEC’s lawsuit by filing a
petition for dismissal arguing that it never listed securities and that the SEC
lacks jurisdiction over cryptocurrency exchanges.
Coinbase’s
defense revolves around the lack of regulatory clarity in the digital asset
sector and inconsistencies in regulatory positions on digital assets, citing
divergent statements by the SEC and CFTC regarding Ether’s classification as a
commodity or security.
Despite
cooperating with the SEC and maintaining transparency, Coinbase was
disappointed by the enforcement action in June and legal proceedings initiated by
ten states concerning their staking services. In Q2, Coinbase reported a revenue decline of 10%
to $662 million, including a drop of 13% in transaction revenue
due to reduced trading volumes, and a decline of 12% in consumer segment revenue.
Notably, a recent federal judge’s opinion suggested that cryptocurrencies could
be classified as securities, contradicting a prior stance in the SEC vs. Ripple
case.
The
move by Coinbase into the crypto lending space reflects the growing demand for
financial services in the cryptocurrency industry, especially among
institutional investors seeking secure and regulated platforms for their
crypto-related activities.
Coinbase
(Nasdaq: COIN) has recently introduced a new crypto lending service in the
United States, primarily targeting institutional clients. This development
comes as a response to the challenges faced by other companies like Genesis and
BlockFi, which experienced significant losses in the past.
The
announcement was made through a U.S. Securities and Exchange Commission (SEC)
filing on September 1st, revealing that Coinbase had already raised $57 million
for this new lending program.
Clients,
who are predominantly institutional investors, can lend money to Coinbase, with
crypto assets being the primary form of collateral. In turn, Coinbase provides
collateral to these clients, typically exceeding the value of the loan. This
overcollateralization serves as a safeguard to protect against potential
losses. Coinbase then uses the funds obtained from clients to offer secured
loans to other institutional trading clients. This service is akin to
traditional prime brokerage services offered by banks in the world of
traditional finance.
Abandoning Controversial
‘Lend’ Program for Retail Customers in 2021
Back
in September 2021, Coinbase’s CEO Brian Armstrong revealed that the SEC had
threatened to sue the exchange if it proceeded with the launch of its product
called ‘Lend’. Coinbase subsequently made a quiet update to a June
blog post, indicating that they would not be launching the “USDC APY
program” that was originally planned.
The ‘Lend’ product was intended to support a crypto savings account that
would offer customers an annual percentage yield (APY) of 4%, which is a significantly
higher return compared to most traditional bank savings accounts. However,
regulatory concerns and potential legal action from the SEC led Coinbase to
abandon this initiative.
The controversial ‘lend’ program was designed for retail customers and cancelled in 2021 following
objections from SEC officials. The current lending service is tailored
specifically for institutional clients, and it is presumed that such investors
have the necessary sophistication to navigate the regulatory landscape
effectively.
Regulatory Ambiguity and
Conflicting Positions: Coinbase’s Defense Strategy
According
to a report by Finance Magnates in August 2023, the SEC had
accused Coinbase of running its crypto trading platform illegally and selling
unregistered securities, alleging that the exchange improperly bundled
exchange, broker-dealer, and clearinghouse services, contrary to securities
regulations. Coinbase was set to challenge the SEC’s lawsuit by filing a
petition for dismissal arguing that it never listed securities and that the SEC
lacks jurisdiction over cryptocurrency exchanges.
Coinbase’s
defense revolves around the lack of regulatory clarity in the digital asset
sector and inconsistencies in regulatory positions on digital assets, citing
divergent statements by the SEC and CFTC regarding Ether’s classification as a
commodity or security.
Despite
cooperating with the SEC and maintaining transparency, Coinbase was
disappointed by the enforcement action in June and legal proceedings initiated by
ten states concerning their staking services. In Q2, Coinbase reported a revenue decline of 10%
to $662 million, including a drop of 13% in transaction revenue
due to reduced trading volumes, and a decline of 12% in consumer segment revenue.
Notably, a recent federal judge’s opinion suggested that cryptocurrencies could
be classified as securities, contradicting a prior stance in the SEC vs. Ripple
case.
The
move by Coinbase into the crypto lending space reflects the growing demand for
financial services in the cryptocurrency industry, especially among
institutional investors seeking secure and regulated platforms for their
crypto-related activities.
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