In order to fill the gap left by the collapse of companies like Genesis and BlockFi, Coinbase (COIN) has developed a new cryptocurrency lending service for institutional clients in the U.S.On September 1, the platform was covertly disclosed in a file with the U.S. Securities and Exchange Commission, which showed that $57 million had already been raised for the program.
A person with knowledge of the situation claims that customers can lend Coinbase money—typically crypto assets—and receive security that is worth more than the loan.Overcollateralization serves as a disaster safety net.
In a manner similar to the prime brokerage service banks offer in conventional banking, Coinbase can then turn around and create secured loans to institutional trading clients, according to the person familiar.Similar loan services were offered in the United States by Genesis and BlockFi, but they incurred significant losses in the previous year that sent them, in whole or in part, into bankruptcy court.
The new service is distinct from Coinbase’s contentious Lend program, which it discontinued in 2021.Officials from the SEC complained since that was targeted at retail customers.On the assumption that big investors have the sophistication to handle it, regulation is less onerous because this newest loan business is instead targeted toward institutions.
“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,” a Coinbase spokesperson said in a statement. “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. To advance this purpose, Coinbase is building the most trusted crypto products and services, and supporting other builders to bring 1 billion people into crypto.”