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Coinbase said it does not have any lending exposure to Three Arrows Capital, Celsius Network, or Voyager Digital, all companies that have collapsed and filed for bankruptcy amid a slump in crypto prices.
The San Francisco-based cryptocurrency exchange said many firms and companies are struggling because they became overleveraged and mismanaged their balance sheets, claiming their issues were “credit-specific” and not related to cryptocurrency itself, according to a blog post from the company.
“We believe these market participants were caught up in the frenzy of a crypto bull market and forgot the basics of risk management,” Coinbase said. “Unhedged bets, huge investments in the Terra ecosystem, and massive leverage provided to and deployed by [Three Arrows Capital] meant that risk was too high and too concentrated.”
It comes at a time when companies involved in crypto are continuing to look for ways to shave down their overhead and reduce costs. Recently, BlockFi, a Celsius competitor which operates a very similar crypto-lending business model, began offering employees buyouts after cutting their staff by 20% the month before. NFT marketplace OpenSea laid off staff by the same amount just last week.
Coinbase reiterated it has not engaged in any risky lending practices and has focussed on building its business in a fiscally responsible way. The company said one of its main goals is to be “the safest, easiest, and most trusted bridge” for investing in cryptocurrencies.
However, the company did note Coinbase’s venture program made a non-material asset in Terraform Labs, the company that oversaw the collapse of the Terra ecosystem, which erased billions of dollars worth of investor funds over the course of a few days.
Coinbase pointed out that it backs customer’s investments 1:1 and said any institutional lending activity they do at Coinbase is also backed by collateral. As a result, the company said it has experienced no losses from its financing book nor exposure to client or counterparty insolvencies. By contrast, Celsius' crypto lending business relied on the company using client funds, without customer discretion, and staking those assets in yield-earning protocols such as Lido.
"A leading prime broker, whether in crypto or other asset classes, should understand and effectively manage counterparty and liquidity risk for the safety of their clients, shareholders, and the market,” the company's blog post read.
Amid the chills of crypto winter, Coinbase has made moves to reduce its operating costs. Last month, the company slashed 18% of its workforce to prepare for a prolonged downturn in the price of digital assets. And just this week, the company pressed pause on its affiliate-marketing program, telling influencers it could no longer support the program because of the bear market.