Crypto Exchanges Turn to Lending to Buttress Dwindling Revenues

• Crypto exchanges are increasing lending activities due to declining revenues, potentially introducing new market risks.
• Major platforms like Coinbase and Binance offer various lending services to stimulate trading and facilitate borrowing.
• The European Securities and Markets Authority (ESMA) highlights the risks in DeFi lending, particularly the excess collateral issue.

On October 16, Bloomberg published an article on a noteworthy trend among centralized crypto exchanges. Suffering from low trading volume and declining revenues, centralized exchanges are doubling down on their lending activities, which could introduce new risks to the market.

According to Bloomberg, major companies including Coinbase Global Inc. and Binance are offering a number of services ranging from margin loans designed to encourage trading, and facilitating borrowing via their platforms, to directly extending loans to customers. In September, Coinbase introduced a crypto lending service tailored for institutional clients in the United States, as reported by CNBC Crypto World.

Bloomberg stated that crypto lending remains small in comparison to the leverage market that caused significant disruptions across the sector when it burst in 2022. However, Professor Hilary Allen of the Washington College of Law at American University, specializing in researching how emerging technologies like cryptocurrencies affect financial stability, noted:

Any time you take an asset and lend it out, you are creating leverage and it creates fragility. I think the crypto industry in general is trying everything right now in a sort of existential struggle.

Accompanying Coinbase, crypto exchange Bitget announced a lending service that allows users to borrow either traditional fiat currency or crypto by using their own crypto as collateral, in July. Simultaneously, Binance has introduced one-hour, interest-free margin loans on multiple occasions, despite experiencing a substantial decline in market share.

Prominent financial and investment leader, Dukascopy Bank is also launching a crypto lending service. The initiative will allow cryptocurrency holders to swiftly access funds while retaining their crypto investments. Through Dukascopy’s crypto lending program, individuals can unlock up to 50% of the value of their cryptocurrency assets without the obligation of repayment.