Coinbase will shut down the Borrow program for retail customers that enabled them to obtain cash loans using bitcoin as collateral, The Block reported.
According to The Block, in May, Coinbase said customers would no longer be able to take out new loans with Borrow. Now, the company says loan holders have until November 20 to pay any outstanding balances or the crypto exchange will sell the bitcoin collateral to close the loans, according to an email it sent to customers that was seen by The Block.
“We have decided to fully close Coinbase Borrow for retail users effective November 20, 2023, in order to focus our resources on the products and services that our customers care about most,” a Coinbase spokesperson told The Block. “We have notified impacted loan holders and are taking extra measures to ensure a smooth transition for them, including providing a four month loan repayment period and access to prioritized support through Coinbase One.”
Coinbase provided a Help article with questions users were asking. Here are a few of the questions:
What happens if I don’t pay back my loan by the due date?
If you have not repaid your loan by the due date we will sell your BTC collateral to pay back the outstanding loan. We will wave the 2% liquidation fee in this case. The liquidations will take place over 5 days, by gradually decreasing the LTV ratio at which we will liquidate at. This will enable us to minimize slippage of any BTC sell orders by spreading them out over time. You will receive an email notifying you of all liquidations. These may be partial liquidations of your collateral. Once your loan account is closed, you will receive a confirmation email.
Will my interest rate be impacted by this news?
No, your interest rate will remain the same over this time.
CoinDesk reported that Coinbase announced in May that it was no longer allowing Coinbase Borrow customers to take out new loans.
The California-based exchange has been under increased scrutiny by U.S. regulators, specifically the Securities and Exchange Commission (SEC), for its operations in the U.S., and has been doubling down on its businesses elsewhere.
Crypto Briefing reported that Coinbase Borrow was once a significant part of Coinbase’s portfolio. Coinbase Borrow had enabled users to secure fiat loans of up to $1 million, using up to 40% of their Bitcoin holdings as collateral. The service carried an annual interest rate of 8.7%
According to Crypto Briefing, closing Coinbase Borrow comes amid regulatory scrutiny of the platform’s services. The SEC charged Coinbase in June for operating as an unregistered securities exchange and for failure to register the offer and sales of its crypto asses staking-as-a-service program. However, Coinbase has not attributed the SEC charges with the end of its Borrow program.
In my opinion, CoinBase appears to be reaching out to customers who were using Coinbase Borrow to let them know how much time they have to pay back their outstanding loan. It seems like the company’s help page clearly explains the rate at which Coinbase will liquidate a borrower’s bitcoin. That’s better than expecting borrowers to pay back the loan all at once.