Crypto exchange Coinbase has confirmed that the company “had no financing exposure” to bankrupt firms, including Celsius Network, Voyager Digital, and Three Arrows Capital (3AC). “The issues here were foreseeable and actually credit-specific, not crypto-specific in nature,” Coinbase stressed.
Coinbase: ‘We Have Not Engaged in These Types of Risky Lending Practices’
The U.K. Financial Conduct Authority’s chief executive, Nikhil Rathi, outlined the FCA’s regulatory goals Wednesday at Peterson Institute for International EconomicsThe Nasdaq-listed cryptocurrency exchange Coinbase clarified its approach to cryptocurrency financing in a blog post on Wednesday. The post is authored by Brett Tejpaul, head of Coinbase Institutional, Matt Boyd, head of Prime Finance, and Caroline Tarnok, head of Credit and Market Risk.
“Solvency concerns surrounding entities like Celsius, Three Arrows Capital (3AC), Voyager, and other similar counterparties were a reflection of insufficient risk controls, and reports of additional struggling firms are fast becoming stories of bankruptcy, restructuring, and failure,” the Coinbase executives detailed, adding:
Notably, the issues here were foreseeable and actually credit-specific, not crypto-specific in nature.
“Many of these firms were overleveraged with short term liabilities mismatched against longer duration illiquid assets,” they noted.
“We believe these market participants were caught up in the frenzy of a crypto bull market and forgot the basics of risk management. Unhedged bets, huge investments in the Terra ecosystem, and massive leverage provided to and deployed by 3AC meant that risk was too high and too concentrated,” the executives explained, emphasizing:
Coinbase had no financing exposure to the groups above. We have not engaged in these types of risky lending practices.
In September last year, Coinbase abandoned the launch of its Lend program after the U.S. Securities and Exchange Commission (SEC) threatened to sue the company if it proceeded with the launch.
“One area of global focus is crypto, both opportunities and risks,” the FCA chief said. “Currently, our remit is limited to anti-money laundering rules for platforms. We have applied those strict rules as we would to any other firm that wants to operate in the U.K. market.”
The Coinbase executives further noted that their company is “focused on building our financing business with prudence and deliberate focus on the client.”
Crypto lenders Celsius Network and Voyager Digital filed for Chapter 11 bankruptcy earlier this month after crypto hedge fund Three Arrows Capital filed for Chapter 15 bankruptcy.
Coinbase also disclosed in the blog post:
While Coinbase does not have counterparty exposure to the companies listed above, Coinbase’s venture program did make non-material investments in Terraform Labs.
The Singapore-based Terraform Labs is the company behind the collapsed cryptocurrency terra (LUNA) and stablecoin terrausd (UST). The firm is now being investigated by South Korean authorities and the U.S. Securities and Exchange Commission (SEC).