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Coinbase Rejects Allegations of Proprietary Trading and Crypto “Market Maker”

Coinbase vehemently denies engaging in proprietary trading, but says some of its competitors do.

A the wall street journal report published on Thursday alleges that Coinbase hired traders to use the company’s own funds to transact and stake crypto in an attempt to make a profit. According to the report, $100 million in Coinbase funds were used in a test transaction that an undisclosed number of anonymous Coinbase employees allegedly referred to as “proprietary”.

In response, Coinbase quickly wrote a blog Publish denying the claims, arguing that the report confused “customer-focused activities” with the trade in accessories.

“Unlike many of our competitors, Coinbase does not operate a proprietary trading business or act as a market maker,” the company wrote, without specifying which rival exchanges it believes are engaging. in this practice.

“In fact, one of the competitive strengths of our Institutional Prime The platform is our agency-only trading model, where we act solely on behalf of our clients,” Coinbase added.

While the self-proclaimed Web3 The company denies ancillary trading claims it occasionally buys crypto for its treasury and operations, according to the blog post.

“We do not consider this to be proprietary trading as its purpose is not for Coinbase to benefit from short-term increases in the value of the cryptocurrency being traded,” Coinbase wrote.

Given concerns about the impact of accessory trading on the US economy in the past, it’s no surprise that Coinbase takes these allegations seriously.

Prop trading is controversial because it is arguably contributed to the financial crisis of 2008. Prop trading, as described in the WSJ report, could run counter to the Volcker’s rulea regulation approved in 2010 in the wake of the financial crisis to prevent banks from making speculative investments like securities, commodity futures or derivatives.

The Federal Reserve adopted the Volcker rule as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was designed to reform the US financial system to prevent future crises.

While some believe that prop trading by financial institutions is dangerous, others have doubts. Although he endorsed his namesake rule, White House economic adviser Paul Volcker himself said long ago that he thought the accessories trade “was there but center pitchto the 2008 crisis.

But since Coinbase operates as a digital currency exchange, the Volcker Rule could apply.

This is far from the first allegation Coinbase and its staff have faced in recent months. Last week, the brother of a former Coinbase product manager pleaded guilty to charges of conspiracy to commit wire fraud in an alleged crypto insider trading scheme involving Coinbase listing announcements.

And last month, a U.S. Congressional subcommittee asked Coinbase, along with a number of other crypto exchanges, “all the documentsregarding how each investigates and handles fraud, saying exchanges have not taken enough steps to prevent illicit activity on their platforms.

Coinbase has not yet responded to a request for comment from Decrypt.

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