- Coinbase shared a blog post to confirm that they won’t allow insolvency prone firms any financing exposure.
- Three Arrows Capital, Voyager and Celsius are the recent organizations to file for bankruptcy.
- Coinbase is listed on NASDAQ index.
Coinbase Takes Great Measure For Risk Management
Insolvency events are talk of the town currently. With 3AC, Voyager and Celsius down the ground, Coinbase, the biggest cryptocurrency exchange based in the United States, has confirmed that they won’t allow financing exposure to any company prone to insolvency. Caroline Tarnok, Matt Boyd and Brett Tejpaul confirmed this in the official blog post.
The decision comes as the crypto exchange is more focused towards risk management. Failing to look after this aspect may lead any organization towards Bankruptcy. As per the blog post, they think that organizations were expecting a bull run in the market, but guess what, their plan went in reverse, leading them to file for bankruptcy.
They also associated the bankruptcy event of Three Arrows Capital with past events like Long Term Capital Management during the 90s, Lehman Brothers case in the 00s and more. They made it crystal clear that they do not practice these types of risky lending practices. Coinbase is purely hitting the nail on customer services to focus on their growth.
The blog post also mentioned the principles the organization gives priority to. This includes stress tests on company’s exposures, rigorous due diligence, doing proper analysis on how things can go wrong and many more. The organization thinks highly of the well functioning market and believes that it is the key to the company’s growth and sustainability. Additionally, the blog post mentioned that risk management is essential too.
What Led Coinbase To Take This Decision
Recent bankruptcy events are among the causes which led the biggest crypto exchange to take this measure. The series of events started with Voyager lending 15,250 BTC and $350 Million to Three Arrows Capital, which they failed to pay, eventually leading Voyager to file for Chapter 11 of bankruptcy.
During Mid-June 3AC was not able to make margin calls, forcing them to liquidate few of their holdings. As per Voyager, Three Arrows defaulted on $646 Million. 3AC said that they weren’t aware that the company is facing exposure to LUNA ecosystem collapse. A court in the British Virgin Islands asked them to file for bankruptcy, which the organization followed and filed for Chapter 15 of bankruptcy.
Similarly, Celsius Network put a stop on all the withdrawals because of crypto market turbulence and filed for Chapter 11 of bankruptcy just a month after. As per the reports, this event was more beneficial for institutional creditors but not for retail investors.
Source: https://www.thecoinrepublic.com/2022/07/22/coinbase-closes-gates-for-three-arrows-capital-voyager-and-celsius/