For years, Coinbase was known as one of the most conservative exchanges. Their scrutiny prior to any addition was visibly rigorous, and their choices only revolved around coins which pass the decentralization test. Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and Ethereum Classic all have a series of common elements: They can be mined, they rely on secure networks, and with the exception of BCH, have been around for enough years to prove the reliability of their network. Furthermore, if the SEC was to investigate any of them, none would get labeled as a security.
This paradigm seemed to shift towards a broader and more Binance-like approach, as a July 2018 Medium post suggested that Coinbase is “exploring” the addition of Zcash, Basic Attention Token, Cardano, Stellar Lumens, and 0x (ZRX). Given the exchange’s reputation for choosing coins that can be mined, are decentralized to a greater extent, and cannot be labeled as securities by the SEC, the choice that made the most sense and fulfilled all previous criteria is Zcash. After all, how can Coinbase operate without a privacy coin in its portfolio?
Well, the conservative assumptions have been demolished on October 16th, as the U.S. exchange has announced the addition of ZRX. For the first time ever, Coinbase added an ERC20 token to the platform and broke its own promises in regards to transparent practices.
The issues behind the addition of ZRX
First, let’s discuss the transparency factor. After the Bitcoin Cash situation from December 19th, which led to suspicions of insider trading (which weren’t confirmed by subjective internal investigations), Coinbase has promised to announce every step along the way of adding another cryptocurrency project.
In this respect, the company handled the Ethereum Classic integration with much more care and made sure to announce every step along the way. As a result, there was less speculation around ETC and the price movement didn’t cause a significant pump to perpetuate the so-called “Coinbase effect” (though the bear market should have made a difference too).
Coinbase seemed to be heading in the right direction until the moment when the exchange posted a blog entry to announce the “exploration” of other assets. It didn’t help much that the following month, in August 2018, an addendum had been published to include over 40 more coin names, thus tarnishing the conservative reputation of the company and implying that the following additions are open to pure speculation.
Now it wasn’t just about Cardano, BAT, Zcash, Stellar and ZRX. On the list you could find the much-anticipated XRP by Ripple, Monero, DASH, NEO, Cardano, and even the lovely Dogecoin.
Therefore, the U.S. exchange has basically created a lottery game where users have to guess which coin is going to get listed next. Until the second half of 2017, it was only about Bitcoin and Ethereum. But as the company grew, its perspectives expanded towards anything blockchain that might appear to be profitable without causing trouble with the regulators. There’s nothing wrong with making money as a company. However, the issue at stake is the lack of transparency and the creation of an increased speculation over the next asset which is going to get added to the exchange. With Ethereum Classic it was all so clear and simple, as the process had been explained step by step. Now that ZRX has become the sixth coin without a specific notice to precede the actions, it all looks shady.
Secondly, Coinbase once again deals with a case of potential conflict of interest. When they added Litecoin in May 2017, Charlie Lee was still working as an engineer within the company. Now that they’ve added ZRX as the first ever token asset, a brief investigation shows us that three people from the project’s board of advisors are related to Coinbase. When Coinbase co-founder Fred Ehrsam advises your project alongside two other people who are affiliated with Coinbase, and somehow it arbitrarily gets picked before Stellar, Cardano, or Zcash, then it’s hard for the community not to become suspicious.
This issue didn’t go unnoticed, and several influencers in the space have voiced their critical opinions. After all, unlike the case of Ethereum Classic (which seemed to create a nice precedent), there was no previous blog post to specifically mention that the next asset is going to be ZRX.
— John Carvalho (@BitcoinErrorLog) October 16, 2018
What is 0x, after all?
In a nutshell, ZRX is an ERC20 utility token that’s built on the Ethereum blockchain and aims to become an exchange which enables trades with other similar tokens on the network. The ICO has raised $24 million in ETH back in August 2017, and 50% of the tokens have been sold to these early investors.
At press time, there are 19 dApps using or planning to integrate the 0x protocol (including Augur, Dharma, Maker, and Set), 10 relayers of the network, and three trade explorers. The project itself seems to benefit from a committed team of developers, features a lengthy and satisfyingly-complete Wiki, and looks promising for the Ethereum network. 0x is also ranked on the 24th position on Coin Market Cap, with a token price of approximately $0.82, a supply of 541.76 million, and a total cap of $448.73 million.
Interestingly, the price has quickly increased prior to the publishing of the Coinbase blog post, but the moment when the news had been delivered affected the price in a negative way. This is perhaps a classical case of “buy the rumor, sell the news”, yet it’s hard to refute or demolish suspicions of insider trading.
0x isn’t the issue here, Coinbase is
The issue with 0x doesn’t have to do with the legitimacy of the project, its intentions, or its value on the cryptocurrency market. It’s all about how Coinbase has handled the situation and the questionable ties between the American exchange and the token marketplace project.
Why wasn’t the process as clear and easy to comprehend as Ethereum Classic’s and why do the rules seem to change every time a new coin gets added on Coinbase? That’s still a mystery to many of us, and the best we can do in the absence of a legitimate investigation is to watch the graphs, read the announcements, and speculate on what we might think about the situation.
It’s unfair, unpredictable, and ultimately bad for business credibility to change the rules of the game each time you add a new coin. Given its bad record and history of raising suspicions after every new listing, Coinbase should know better.
In order to clarify the situation, an e-mail has been sent to Coinbase’s press address. At press time, no response has been provided. If the situation changes, the post will be updated with the complete official statement.
Featured image courtesy of Coinbase