- Thousands of Coinbase users lost a collective $170 million in crypto-backed loans over the past week amidst a market downturn.
- The losses represent the most significant liquidations in the one-year history of the lending product, which has originated $1.8 billion in loans.
- Coinbase states it does not earn fees from liquidations but receives a cut of performance fees from risk managers on the DeFi platform Morpho.
- The exchange notifies users when loans are at risk and enforces a collateral buffer, but acknowledges the inherent risks of crypto-backed loans.
Thousands of Coinbase customers suffered significant financial losses this week as the platform’s crypto-backed lending product faced massive liquidations during a sharp market decline. According to a Dune dashboard, users lost $170 million in collateral over the past week, including $90.7 million from 2,000 users on Thursday alone.
This represents the most severe loss event since the product launched last year, which Coinbase once promoted as a way to “empower people to help grow their wealth.” Consequently, as Bitcoin and Ethereum fell 17% and 26% respectively, loans became unhealthy, allowing third parties to repay them and claim the collateral at a discount.
However, Coinbase emphasized it frequently warns users of liquidation risks, with notifications sent as often as every 30 minutes. A company spokesperson described the loans as faster and more efficient than traditional options, though they carry distinct risks users must understand.
Meanwhile, the exchange clarified it earns no direct fees from these liquidations. Instead, it profits as a technology provider by taking a share of performance fees earned by risk managers on the Morpho protocol.
Since its debut, the lending product has originated $1.8 billion in loans for purposes like car purchases or home renovations. The spokesperson confirmed the company is exploring additional ways for users to protect their loan positions moving forward.
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