In a recent report dated October 16, Bloomberg has shed light on a significant development in the world of centralized crypto exchanges. Facing challenges such as dwindling trading volumes and declining profits, these exchanges are increasingly emphasizing lending services, a move that could potentially introduce new risks to the crypto market.
According to Bloomberg, major players in the industry, including Coinbase Global Inc. and Binance, are diversifying their services by offering a range of lending solutions. These services encompass margin loans designed to incentivize trading, facilitating borrowing opportunities on their platforms, and even directly extending loans to customers.
As previously reported by CNBC Crypto World, in September, Coinbase launched a crypto lending service tailored specifically for institutional clients in the United States.
Despite the growing emphasis on crypto lending, Bloomberg emphasized that this market segment remains relatively small when compared to the leverage market, which caused substantial disruptions across the crypto sector in 2022 when it eventually burst. However, Professor Hilary Allen from the Washington College of Law at American University, who specializes in researching the impact of emerging technologies like cryptocurrencies on financial stability, pointed out a critical concern:
“Lending out assets inherently creates leverage, introducing fragility into the market. The crypto industry is currently experimenting with various strategies in what can be seen as an existential struggle.”
In addition to Coinbase, another notable development is the introduction of a lending service by the crypto exchange Bitget. This service enables users to borrow either traditional fiat currency or crypto by using their existing crypto holdings as collateral. Bitget introduced this offering in July. Meanwhile, Binance, despite experiencing a notable decline in market share, has repeatedly offered interest-free margin loans with a one-hour repayment window.
Further expanding the trend, Dukascopy Bank, a well-known financial and investment institution, is preparing to launch its own crypto lending service. This initiative aims to provide cryptocurrency holders with rapid access to funds while allowing them to retain their crypto assets. Through Dukascopy’s program, individuals will be able to unlock up to 50% of the value of their cryptocurrency holdings without the obligation of immediate repayment.