September 6, 2023 at 14:20 GMTModified date: September 6, 2023 at 14:20 GMT
September 6, 2023 at 14:20 GMT

Coinbase launches new product for institutions amid SEC lawsuit

Leading exchange Coinbase has launched a new lending service targeting institutional investors in the US. 

Coinbase launches new product for institutions amid SEC lawsuit

Leading exchange Coinbase has launched a new lending service targeting institutional investors in the US. 

The move comes after significant disruptions and bankruptcies in the crypto lending sector, leaving a market gap for crypto products for institutions. 

The exchange discreetly launched Coinbase Prime, a comprehensive brokerage platform, according to a recent Bloomberg report on 5 September. This platform helps organisations in executing trades and also provides custody for their assets.

It follows a few months after the US Securities and Exchange Commission (SEC) charged Coinbase for offering and selling unregistered securities. The exchange denied these allegations.

Coinbase Prime details 

According to a filing with the U.S. Securities and Exchange Commission, Coinbase’s institutional customers have already invested $57million in the lending program since the first sale occurred on 28 August. So far, the offering had attracted five investors as of 1 September.

In a statement, Coinbase said: “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.”

Earlier this year, Coinbase ventured into lending with its service named Coinbase Borrow, designed for retail investors. While they stopped issuing new loans through this service, the new institutional program is managed by the same entity. 

Crypto’s institutional market gap

Coinbase’s recent move can be seen as an attempt to fill the market gap created by the downfall of prominent firms like BlockFi and Genesis Global. 

In the past year, the crypto world witnessed the bankruptcy of major lenders like Celsius Network, BlockFi, and Genesis Global. These lenders faced challenges due to their high-risk bets that did not yield the expected returns. This led to a domino effect of failures, limiting investors’ borrowing and leverage options.

Another notable bankruptcy was that of FTX and its sister hedge fund Alameda Research. These bankruptcies have potentially paved the way for Coinbase to expand its market presence.

Coinbase vs SEC 

Coinbase’s launch of this new product follows the SEC filing a lawsuit against the exchange in June. The commission alleged that Coinbase violated federal securities laws. 

The charges accused Coinbase of operating as an unregistered securities exchange. The SEC listed 13 tokens as examples that it considered securities. These included Solana, Cardano and Polygon.

Coinbase responded to these allegations in a recent filing. They clarified that the SEC hasn’t shown any evidence of investment contracts in the examples. 

“The transactions over Coinbase’s platform and Prime are not, and do not involve, contractual undertakings to deliver future value reflecting the income, profits, or assets of a business,” the filing said. “They are commodity sales, with the obligations on both sides discharged entirely the moment the digital token is delivered in exchange for payment.”

The SEC has filed charges and pursued cases against various crypto exchanges and projects this year. This includes XRP-issuer Ripple and the largest crypto exchange Binance. 

However, the commission has recently been landed a setback after a federal court overturned its rejection of Grayscale’s Bitcoin ETF.