These days, Coinbase has revamped its policy for listing some new cryptocurrencies, replacing an ad hoc process with one the startup hopes that it is rapidly going to expand the range of assets which are traded on its exchange.
As it was announced this Tuesday, the new system permits anyone to submit a cryptocurrency through an online form for evaluation under the digital asset framework of the company. Those who meet the criteria may be listed, even though they are not necessarily available right away to all the customers of Coinbase.
The reason for this is because listings are going to be added on a jurisdiction-by-jurisdiction basis, rather than supporting all the assets globally as Coinbase did before. As a result of that, some coins will not be available for the customers of Coinbase to trade in places where local laws and regulations either expressly forbid them or are not clear about their legality. It is not unlike Netflix streaming certain movies in one country but not another for copyright reasons.
Before that, there was no formal mechanism to request a listing, and organizations would lobby Coinbase to support their assets. Being such, the change represents a welcome mat of sorts to crypto development teams from a company whose mainstream popularity potentially offers some unparalleled exposure.
The purpose of Coinbase on the marketplace
The CTO of Coinbase, named Balaji Srinivasan, in one interview, said that now, they are actively reaching out to asset developers with this.
Referring to the first two digital currencies creators, which the company listed, Bitcoin, as well as Ethereum, he added that Satoshi and Vitalik Buterin were not customers of Coinbase. But all the future, as well as current asset creators and developers are its customers. So, he continued, saying that it is like they are becoming a two-sided marketplace.
In this marketplace, Coinbase has the purpose of changing an application fee and an additional fee, to list approved assets. Srinivasan did not mention how much they are going to be, but he said they wouldn’t be prohibitive.
Further on, the application fee is only meant to deter spam, and the listing fee is going to cover the cost of due diligence. He added that they don’t want that to be a burden which deters people from listing new assets with them.
Meanwhile, Srinivasan confirmed that Coinbase is still evaluating cryptos like Lumens, Ada, or ZCash, which may be followed out globally or selectively, depending on the specific regulatory requirements.
However, aside from regulatory and technical considerations, the primary listing criterion for Coinbase is market demand.
Srinivasan said that they want to make sure that their customers are there. He added that the three big questions are:
Is it legally complaint?
It is technically secure, as well as innovative?
Do their customers want it?
Here, Coinbase is probably breaking ground, and jurisdiction-by-jurisdiction asset listings seem to be a rare practice among cryptocurrency exchanges.
One partner at the Washington, D.C.-based law firm Anderson Kill, who often pokes fun at the naivete of crypto enthusiasts about legal requirements, named Stephen Palley, said that it is an approach he was advocating for an extended period.
He said that if someone is Ford or Apple or Google and wants to sell their stuff around the world, they actually do compliance all over the world, noting that such brands point to customize their terms of service for some particular countries.
Even though it is ‘a smart play’ which minimizes legal risks while permits a company to engage in selective market testing, Palley added that it is a pain in the ass and it is quite expensive.
Indeed, putting the policy into practice will probably add a layer of complexity to the operations of Coinbase, as the company will need to make sure that customers are not trading assets which their local regulators do not permit.
Other crypto exchanges faced challenges too
Some crypto exchanges already faced similar challenges in the prevention of their sites from being accessed in U.S. states in which they are not licensed to do business.
One litigation partner at Jenner & Block LLP, named Justin Steffen, said that while geoblocking may be helpful in preventing crypto companies from inadvertently becoming subject to several rules and regulators, even the precaution may not be quite enough. He added that the recent report of the New York Attorney General on crypto exchanges, for instance, noted the lack of exchanges which limit VPN access.
When Srinivasan was asked about that, he said that Coinbase is going to do everything that is needed to remain compliant with local law. This may actually mean utilizing customer identification details in addition to or a supplement to IP address.
There are still a lot of questions which are waiting to be answered about how this switch is going to affect the users of Coinbase.
For example, does the move from California to New York mean that a customer loses access to assets they bought on Coinbase? Also, if Coinbase does in fact block VPNs, that could be a turn-off for privacy-conscious users or Americans that are traveling to countries such as China or Iran, with restricted internet service, where ‘tunneling’ is the only way in which they access regularly visited sites.
Moreover, many people at the company have the responsibility for evaluating these assets, and Srinivasan declined to specify what benchmarks they are going to be demanded to hit or how internal policies are going to restrict insider trading. Accusations based on such alleged conflicts of interest plagued the company in the past when it actually came to assets like Bitcoin Cash and Litecoin, the latter of which has been created by Charlie Lee, who is a former employee of Coinbase.
The high fees sparked controversy
However, it still remains to be seen how the cryptocurrency community is going to react to the concept of Coinbase charging teams a fee for lasting, given that high fees amounts at certain exchanges have caused controversy in the past and charges of ‘pay to play’ methods too.
However, the founder of the institutional crypt asset exchange Swatt Exchange, named Marshall Swatt, said that listing fees are a standard part of running an exchange.
Swatt said that every major exchange of financial instruments, like the equities industry, charges listing fees. It is quite costly for an exchange to onboard a new instrument, and there is no way to avoid that cost.
He added that every new blockchain adds risk to the operations of an exchange. He said that he is wholly in favor of an exchange charging a listing fee, and he does not see any ethical or other problems with doing that. Whether they let the market decide the fee, or set a flat one, or some other reasonable arrangements, it is completely appropriate, according to Swatt.