If it wasn’t already clear enough that SEC Chairman Gary Gensler viewed most tokens as securities from the many times he said so, two weeks ago the SEC started walking rather than just talking. A former Coinbase product manager commissioned insider trading, and it listed nine designated tokens as unregistered securities in its complaint.
It seems to me to be the biggest crypto news of the summer so far, with broad 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 on Coinbase for trading. (DFX and KROM in an internal Coinbase spreadsheet were tokens I had planned to include, but never did.)
The nine projects behind these tokens have been conspicuously silent in response to the Securities and Exchange Commission (SEC) petting them. Coinbase did not.
The response posted by Chief Legal Officer Paul Grewal on the Coinbase blog was titled “Coinbase does not list securities. End of story.” Grewal wrote, “None of these assets are considered securities. Coinbase has a rigorous process of analyzing and reviewing each digital asset before it is made available on the exchange… This process includes an analysis of whether the asset can be considered security or not.”
But of course, that’s not the end of the story. This is just the beginning. Gensler wouldn’t say, “Oh, don’t worry, Coinbase says it’s not a security.”
In response to the SEC token listing, Binance has delisted AMP, which is the only one of the nine listed on Binance US. She said she was doing so out of “extreme caution”. This was an effective phishing of rival Coinbase, which could not afford to remove any of the tokens.
The last time the SEC came after Coinbase for a specific product or asset was a year ago, when it threatened to sue Coinbase if it went ahead with its planned high-return lending offering. At the time, Ripple CEO Brad Garlinghouse, who has been fighting the SEC since 2020, tweeted a “Die Hard” meme on Coinbase CEO Brian Armstrong: “Welcome to the party, pal.” Mark Cuban also urged Armstrong to “go on the offensive.”
But 13 days after the SEC threatened, Coinbase gave up and dropped the product.
This time, the company can’t back down so quickly. A source at Coinbase told me that deleting the token would “undermine our entire position.”
On the same day that the Securities and Exchange Commission classified nine securities, Coinbase filed a “rule-making petition” calling for the agency to create a new regulatory framework for digital assets. Coinbase FTX competitor wants the same thing; All exchanges do.
In an interview with FTX CEO Sam Bankman-Fried on Friday for the next episode of our podcast, I asked about the nine tokens.
“What I would most like to see are the regulatory frameworks, registration model frameworks, and exits for both platforms and assets, and I am optimistic that over the next year we will see some from multiple agencies,” he said. “It doesn’t mean you can’t make decisions in the meantime. It doesn’t put you in a situation where it is impossible to judge what anything is… and it is very intentional that we have listed fewer tokens on FTX US than many platforms.”
This seems like a touch of shadow for Coinbase to list so many tokens in the first place, a strategy that has brought the company a lot of criticism for opening its doors to a lot of “shitcoins.” But now Coinbase must stand by its approach and challenge Gensler on behalf of its peers.
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