Should exchanges like Coinbase be allowed to list their partners' coins first?

11 Dec, 2018 | Updated: 11 Dec, 2018
by Arthur Sillers
Should exchanges like Coinbase be allowed to list their partners' coins first?

According to In Crypto, Coinbase’s recently announced batch of coins which are under consideration for adding as trading options for the crypto exchange has raised some eyebrows among crypto experts- given that Coinbase is mainly confirming coins it has investments in. Is this a problem for crypto and will regulation change this type of behavior?

The list of around 30 coins was published less than a week ago, and includes well known and highly traded coins like Ripple’s XRP and Stellar as well as a relatively obscure coins like Po.Et or MRK. Since then, four coins have already been confirmed to be added to Coinbase’s platform, including  Decentraland (MANA), Civic (CVC), district0x (DNT) and Loom Network (LOOM).

In Crypto did some gumshoe googling, and found out that the coins share some of the same investors and in some cases developers. Specifically, the Digital Currency Group, which backs Zcash (which has already added to Coinbase) as well as Decentraland. The Digital Currency Group has also partnered with district0x, Civic, and ANT,  which hasn’t been confirmed by is being considered.

The fact of the matter is that Coinbase has quickly listed a lot of the tokens which they have apparent financial interest in. While perhaps this might be seen as a conflict of interest, it’s not clear that there is anything particularly immoral, let along illegal about it. Coinbase is certainly more motivated to list coins which, when traded, benefit them on their exchange. Furthermore its unsurprising that coins which they back are more likely to fall in line with their selection criteria, and conversely they are likely to tailor their selection criteria to the coins they support.

The takeaway isn’t that Coinbase is up to a conspiracy to secretly privelege their coins, but what should be apparent is that the structure of investing in cryptocurrency alters the competitive field. When exchanges are able to invest in crypto projects, they are inevitably going to want to list them on their exchange. This is a pretty big difference between traditional trading platforms like stock exchanges and a crypto exchange like Coinbase. A stock exchange would not be allowed to privilege investment in companies they have invested in over a competing product, but the same regulatory infrastructure doesn’t exist for crypto.

As regulators move forward with creating laws to deal with crypto trading, this might change the field, and exchanges and cryptotokens may not be allowed to have such close relationships in the future. As it stands however, crypto is an insular community, with a few large actors making the decisions while competing tokens are at a disadvantage.

Read more: CFTC former chairman implores more regulation 'than even the oil markets'Law professor slams U.S. regulatory confusion: "Crypto is money, property, a security and a commodity..."

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