Coinbase said it had zero financing exposure to insolvent crypto entities. It also highlighted that its venture capital arm enacted “non-material investments in Terraform Labs.
Coinbase declared it had no financing exposure to ruined crypto firms Celsius Network, Three Arrows Capital (3AC), or Voyager Digital, expecting to subdue concerns about the exchange being at risk of a liquidity crisis.
The company said these entities were highly indebted with short-term responsibilities that showed inconsistencies against longer-duration illiquid assets.
Each of these firms opted for bankruptcy after experiencing a Crashdown that led to the liquidation of indebted positions. The company said they have not engaged in these risky procedures, so they focused on consolidating their business with prudence and a strong focus on the customers.
Shares of Coinbase increased from 15% to $75.68 after the news arrived in various media outlets. The stock then collapsed 70%, crumbling from a figure registered at $251 in early January.
Coinbase Noted Many non-Material Investments in Terra
Coinbase also explained how its venture capital arm carried out non-material investments in Terraform Labs, the South Korean entity in charge of Terra. The $60 billion blockchain crashed dramatically in May, spreading dangerous side effects across the crypto space.
The U.S. exchange has been the target of market speculation. Observers aimed at a decision made by the company to freeze its affiliate program as a sign of insolvency.
Coinbase explained that solvency issues at Celsius, Three Arrows, Voyager, and other similar entities in the crypto market were a clear sign of insufficient measures to control risks.
On the other hand, the exchange clarified that it does not take part in lending or other activities involving currencies held by its customers. Any lending activity takes effect under total discretion to protect the decisions of its customers. These decisions get supported by collateral, which serves as the first shield of protection against a possible default contagion.
Coinbase said it always holds customer currencies 1:1; this means that these funds are always ready for a constant withdrawal procedure.
The entity also said that it always needed 100%+ collateral, so they count on a record of zero losses from their financing registries and zero exposure to insolvencies from failed entities.
A Chain Reaction in the Crypto World: Terra
Crypto markets have declined intensely since the multi-billion Crashdown of the Terra space in May. Amid the defeat, which presented a bitcoin (BTC) plunge registered at more than 70% from its all-time high, prominent crypto entities such as Celsius and 3AC started to suffer a liquidity shortage.
After getting an Overleveraged status, the entities got forced to freeze the withdrawal procedures as investors moved to take their funds out of the affected entities. The value of the assets housed by the entities crumbled so intensely that they could not attend withdrawal requests.
After this chain of events, Celsius, 3AC, and Voyager opted for bankruptcy protection. The market downtrend has also led to stopping withdrawals at Zipmex, a famous crypto exchange operating out of Singapore.
By: Jenson Nuñez
