Coinbase isn’t relaxing as North America’s largest crypto exchange. The company now has shareholders to answer to and is making a push to expand services across the board.
After the failure of its Coinbase Lend program, the Silicon Valley giant is moving into derivatives as the next point of focus.
Coinbase is Getting Bigger
Earlier this month, Coinbase published a blog post confirming it had added yet another company to its family - FairX - a Designated Contract Market (DCM) derivatives exchange. Founded in 2021, FairX has managed to secure partnerships with the top brokers in the market, including E*Trade and TD Ameritrade. Now, the company will help Coinbase push into proper derivatives trading.
Coinbase said the FairX acquisition will be central to its goal of rolling out derivatives trading services to customers- especially in the United States. The company said it wants to make derivatives more accessible to retail customers, allowing them to make bigger bets in the market and grow their wealth.
In a subsequent tweet announcing the move, Coinbase said adding derivatives to its suite of offerings will eventually benefit all investors on its platform.
“The creation of a transparent derivatives market will unlock further participation in the crypto economy for retail and institutional investors alike,” the exchange said.
Protecting Its Standing In the Industry
And Coinbase is right. The crypto derivatives space accounts for almost $140 billion in daily trading volumes across all platforms. This puts it much higher than the $55 billion in daily trading volumes from spot traders across the market.
While derivatives are considered riskier than simple spot trading, they are also more lucrative. Investors can make a lot from trading these assets - especially in a market as volatile and as liquid as crypto.
It also shows that Coinbase is looking to strengthen its position in the market. The exchange has never been known for its derivatives offerings; that space is ruled by names like Binance, FTX, and OKEx. With all these platforms competing with Coinbase on the spot trading front, Coinbase is simply ensuring it can nab some market share.
Coinbase already has a strategic advantage. It counts 56 million users, 8.8 million making at least one trade monthly. If it launches derivatives trading, Coinbase will most likely become one of the top players in that field.
Recovering from the Coinbase Lend Fiasco
The launch of derivatives is the first major product rollout from Coinbase since the company’s failed attempt to establish a lending program.
Coinbase announced its Coinbase Lend program last year to much fanfare. The company promised investors could get up to 4 percent in annual percentage yields (APY) on their loans. It even released a waitlist for interested customers to sign up.
Things weren’t to be. Coinbase eventually confirmed that the Securities and Exchange Commission (SEC) had sent warnings over the lending feature. In a Medium post, Coinbase’s legal chief said the regulatory agency had threatened to sue it if Coinbase Lend launched.
In a lengthy Twitter tirade, Coinbase’s CEO Brian Armstrong explained that Coinbase told the SEC about the new lending feature before they announced it. The disclosure was merely a formality, Coinbase expecting little pushback since many other fintech platforms had lending services.
But the SEC informed Coinbase that it would consider the lending feature as a security - Coinbase would need to register it with the SEC, which would then regulate the feature as an investment.
Coinbase immediately registered their dissent, but the SEC still opened an investigation into the company.
For its part, the SEC noted in a subtweet that the Coinbase Lend feature seemed similar to an interest-bearing bond. Since these bonds are treated as securities, the agency believes Coinbase Lend should fall under the same classification.
Coinbase eventually discontinued the lending feature, Bloomberg noting that the company had stopped signing people on to the waitlist. Coinbase has said it will continue to look for regulatory clarity, but all signs indicate the lending program is dead in the water.