January 24, 2025
Membrane Team
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This week’s announcement that the SEC rescinded SAB 121 is a significant milestone for crypto lending. By removing a key accounting barrier, U.S. banks can now provide custody services and open up doors to potential ancillary services, one of which would be related to crypto lending (specifically Bitcoin). Here’s how:
Pristine Collateral Recognition: SAB 121 treated Bitcoin as a liability rather than acknowledging its true role as “pristine collateral.” The removal allows Bitcoin to be recognized appropriately, enhancing its utility in lending markets.
Expanded Lending Capacity: Custodians play a vital role in holding collateral for crypto lenders. With SAB 121 lifted, custodians no longer face inflated balance sheets from accounting liabilities, enabling them to support crypto lending operations more effectively.
New Client Segments: With banks now able to hold Bitcoin on their balance sheets, a new class of investors, specifically corporate clients, will have the ability to adopt it as a treasury asset (a theme that has been notably growing). Moreover, these clients will not have to sell (and incur tax charges) as they will be able to borrow against their Bitcoin. Over time, expect rates to become more competitive.
Increased Institutional Participation: The rescission reduces perceived risks for institutions, making the space more attractive to banks and other participants who were hesitant due to accounting complexities.
Membrane streamlines crypto middle and back-office operations, managing OTC loans, spot trades, and derivatives. In 2024, Membrane held various discussions with Banks regarding our modular software. This news will allow banks to more confidently start exploring if/how crypto lending and other crypto services could be integrated (MS and BofA both detailed crypto integration plans this week). Please get in contact to learn more.
