Coinbase denied that the exchange did not have any loans related to Three Arrows Capital, Celsius Network or Voyager Digital. These are all three companies that have collapsed and filed for bankruptcy amid the recent crypto market downturn.
San Francisco, US-based crypto exchange Coinbase says many companies are struggling because of losses and mismanagement of balance sheets. Furthermore, the Coinbase blog post also highlights that the problem faced by these platforms is credit-specific and not just crypto-related.
“We believe that those involved in the field have all gotten caught up in the frenzy of an uptrend crypto market and forgotten the basics of risk management. The unprofitable stakes, huge investments in the Terra ecosystem, and the overwhelming leverage offered by Three Arrows Capital are risks for these platforms.” Coinbase exchange made it clear in the blog post.
The downturn of the cryptocurrency market is the reason why many companies have launched plans to cut staff and reduce costs during this period. Recently, BlockFi, a Celsius competitor, has been operating a crypto lending business model after it decided to lay off 20% of its staff last month. In addition to BlockFi, the world’s leading NFT exchange OpenSea also made a similar move last week.
It is worth noting that Coinbase emphasized that the exchange has not engaged in any risky activities in the past. Instead, the platform has focused on serious business strategy development. One of the main goals of the exchange is to become “the safest, easiest and most reliable bridge” for users to invest in crypto.
However, Coinbase claims the exchange’s venture program has created an immaterial asset in Terraform Labs, the company behind Terra, which evaporated $40 billion in just a few days.
Coinbase says that it supports user investments and emphasizes that any institutional lending is backed by collateral. That has helped the company not see many financial losses or face the risk of insolvency for users or partners.
In contrast, Celsius’s crypto lending business relies heavily on the company’s use of customer funds without their approval. At the same time, the company has staked those assets on several protocols like Lido.
“For a top broker, whether in the crypto space or other financial markets, it is wise to understand and effectively manage liquidity risk to ensure the safety of their clients and partners. .” Coinbase shared.
Amid the crypto winter, Coinbase has made moves to reduce its operating costs. Last month, the company cut its staff by 18% in preparation for a prolonged drop in crypto prices. This week, the company was forced to suspend its affiliate marketing program due to harsh market conditions.