SEC filing reveals Coinbase’s new crypto lending service

U.S. Securities and Exchange Commission headquarters – CC BY-SA

A U.S. Securities and Commission filing dated September 1 revealed Coinbase Global Inc.’s new crypto loan offering program for institutional investors. The same filing also showed that the cryptocurrency exchange platform had secured $57 million for the initiative, invested mainly by its customers.

Dubbed Coinbase Prime, Coinbase’s new program acts as a full-service prime brokerage platform that allows institutions to trade and delegate custody over their assets. Coinbase Prime operates similarly to how a traditional prime brokerage services bank provides regular loan services. The service allows investors to lend their Coinbase assets, which primarily comprise various cryptocurrencies and other digital assets.

In turn, Coinbase Prime allows investors to receive collateral that exceeds the value that they have lent out. This form of protection is called over-collateralization, which guards against losses that may incur. Coinbase can then provide secured loans to institutional trading clients.

“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 Tuesday.

Coinbase had previously established a similar loan program called Borrow in 2021. The primary difference lies in the target markets, in which the 2021 program was targeted toward retail customers while the current one is targeted towards institutions.

Unfortunately, amid a legal battle with the SEC, the company shut down Borrow’s services in November 2023. The SEC sued Coinbase for allegedly selling unregistered securities.

In the wake of Grayscale’s recent win of its bitcoin ETF application, however, there were positive developments for the crypto industry. This boosted Coinbase’s confidence to launch the new crypto lending service after being granted permission to provide crypto futures to U.S. retail customers.

Potential market impact

In the Tuesday statement, Coinbase reiterated its commitment to provide more people with access to the crypto market.

“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,” Coinbase said.

“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.”

The company’s proposal to repurchase bonds from investors attracted more attention than anticipated, which caused the new loan program to raise the maximum amount of bonds it is willing to purchase from 150 million to 180 million.

Coinbase has been enjoying a consistent increase in cash flow, with nearly $500 million moved to the company in an agreement with MakerDAO back in April and a spiking on-chain transaction since January.

Capitalizing on the vacuum left in the wake of the collapse of firms such as BlockFi Inc. and Genesis Global Holdco, the new crypto-lending platform could be their new gold mine. The program is appealing to large institutions as it provides them with access to a hefty amount of liquidity and capital.

In the long term, the loan program can also help increase investors’ confidence in the crypto market by providing them with a greater degree of security and stability.