Coinbase Says Solvency Concerns a Reflection of Insufficient Risk Controls

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By Sam Boughedda

In a blog post Wednesday, cryptocurrency exchange Coinbase (NASDAQ:COIN) said solvency concerns surrounding crypto companies were a reflection of insufficient risk controls.

The exchange named Celsius, Three Arrows Capital (3AC), Voyager, and "other similar counterparties" as companies not implementing sufficient risk management, adding that reports of additional struggling firms "are fast becoming stories of bankruptcy, restructuring, and failure."

"We believe these market participants were caught up in the frenzy of a crypto bull market and forgot the basics of risk management. Unhedged bets, huge investments in the Terra ecosystem, and massive leverage provided to and deployed by 3AC meant that risk was too high and too concentrated," wrote Coinbase.

They added the issues here were "foreseeable and actually credit specific, not crypto specific in nature. Many of these firms were overleveraged with short term liabilities mismatched against longer duration illiquid assets."

After stating they have no financing exposure to the groups mentioned and outlining their attitude toward risk controls, Coinbase said a healthy and well-functioning financing market is "essential to the expansion and sustainability of any economy."

However, they acknowledged it might take time for the broader industry to learn the lessons from the systemic deficiencies.

Coinbase shares have surged 11.5% during Wednesday's session.