Coinbase, the well-known cryptocurrency exchange, has once again stepped into the world of crypto lending with a focus on institutional investors in the United States. This move appears to address gaps in the cryptocurrency lending market.
The newly launched crypto lending platform is an extension of Coinbase Prime, aimed at serving the needs of institutional investors. A Coinbase spokesperson confirmed this development, highlighting that institutions can now lend digital assets to Coinbase with standardized terms that adhere to a Regulation D exemption.
According to an official filing with the US Securities and Exchange Commission (SEC), Coinbase has already attracted substantial interest in its lending program. Customers have invested $57 million into the program since its launch on August 28, with five investors participating as of September 1.
This new offering aligns with Coinbase's mission to modernize the financial system, leveraging cryptocurrencies to provide greater economic freedom and opportunity. However, while the move could be an interesting diversification for the company, it’s still not quite clear what kind of impact it will have on revenue or its stock. After all, Coinbase’s bread and butter is still crypto trading.
Operated by Coinbase Credit
Interestingly, this new crypto lending service operates under Coinbase Credit, the same entity that managed Coinbase Borrow. This is worth noting since Coinbase Borrow suspended new loan issuances in May 2023.
Coinbase Borrow allowed users to secure loans of up to $1 million by offering Bitcoin as collateral. However, regulatory concerns led to its suspension earlier this year. The SEC had accused Coinbase of offering and selling unregistered securities related to its crypto staking services, which allow users to earn yields by staking their crypto assets. Coinbase contested these allegations but was compelled to suspend the staking program in certain US states while legal proceedings continued.
The service is also quite different from the controversial Lend program, which Coinbase canceled back in 2021. The planned program was aimed at retail customers and the product was intended to power a crypto savings account that generated a 4% annual percentage yield, a much higher return than most savings accounts at traditional banks. However, the SEC objected to the launch which ultimately led to Coinbase canceling the program.
The crypto lending industry faced significant challenges in the past year, marked by major companies like BlockFi, Celsius, and Genesis Global going bankrupt due to a lack of liquidity caused by the 2022 bear market. With the increasing pressure from last year’s “Crypto Winter” and the growing regulatory uncertainty, Coinbase’s new service doesn’t really change the case for exercising caution. It’s going to take a lot of improvement and stability in the sector before things look more positive in the long run; hopefully, Coinbase’s repeated legal stands against the aggressive regulatory landscape will help drive things in the right direction.