Who’s Afraid of Gary Gensler? Coinbase is getting ready for a fight

If it wasn’t already clear enough that SEC Chairman Gary Gensler considers most crypto tokens securities, having said so many times, two weeks ago the SEC started walking the trail instead of just talking. She accused a former Coinbase product manager of insider trading and listed nine specific tokens as unregistered securities in her complaint.

To me, it looks like the biggest crypto news of the summer so far, with the most far-reaching implications for the industry.

The nine tokens are AMP, Rally (RLY), DerivaDEX (DDX), XYO, Rari Governance Token (RGT), LCX, Powerledger (POWR), DFX and Kromatika (KROM). The first seven are listed for trading on Coinbase. (DFX and KROM were in an internal Coinbase table of tokens they wanted to list, but they never did.)

The nine projects behind these tokens have been conspicuously silent when fingered by the SEC. Coinbase doesn’t have that.

Responding to the Coinbase blog post, Chief Legal Officer Paul Grewal read, “Coinbase does not list any securities. End of story.” Grewal wrote: “None of these assets are securities. Coinbase has a rigorous process to analyze and verify each digital asset before it is made available on our exchange…this process includes an analysis of whether the asset could be considered a security. “

But of course it’s not the end of the story. It’s just the beginning. Gensler won’t say, “Oh, never mind, Coinbase says it’s not securities.”

In response to the SEC’s token listing, Binance delisted AMP, the only one of the nine listed on Binance US. It does so out of “abundance of caution”. This was effective trolling by rival Coinbase, which cannot afford to delist any of the tokens.

The last time the Securities and Exchange Commission went after Coinbase for a specific product or asset was a year ago, when it threatened to sue if Coinbase continued its proposed high-yield lending offering. At the time, Ripple CEO Brad Garlinghouse, who has been fighting the SEC since 2020, tweeted a “die hard” meme to Coinbase CEO Brian Armstrong: “Welcome to the party, pal.” Mark Cuban also urged Armstrong to “go on the offensive to go”.

But 13 days after the SEC threat, Coinbase caved in and dropped the product.

This time, the company cannot back down so easily. Delisting the tokens, a source at Coinbase told me, would “undermine our entire position.”

On the same day that the SEC designated nine tokenized securities, Coinbase filed a “rule-making petition,” asking the agency to come up with a new regulatory framework for digital assets. Coinbase rival FTX wants the same; all exchanges do.

In an interview with FTX CEO Sam Bankman-Fried on Friday for the next episode of our gm podcast, I asked about the nine tokens.

“What I would most like to see is regulatory frameworks, registration form frameworks coming out for both platforms and assets, and I’m optimistic that we’ll see some from multiple agencies over the course of the next year,” he said. “That doesn’t mean you can’t make decisions in the meantime. That doesn’t put you in a position where it’s impossible to judge what anything is… and it is very intentional that we have fewer tokens listed on FTX US than many platforms have.”

That sounds like a touch of shadow at Coinbase for listing so many tokens in the first place, a strategy that has drawn the company a lot of criticism for opening its floodgates to so many “shitcoins.” But now Coinbase must stand by its approach and challenge Gensler on behalf of its peers.

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