“There is always the possibility that someone inside Coinbase could, wittingly or unwittingly, leak information to outsiders engaging in illegal activity,” said Brian Armstrong.
After some crypto sleuths made allegations of insider trading by individuals potentially connected to Coinbase, CEO Brian Armstrong said the crypto exchange would change some of its token listing practices.
In a Thursday blog post, Armstrong did not confirm whether any Coinbase employees had received disciplinary action or been referred for criminal charges in response to allegedly receiving insider information used to profit off certain token listings. According to the CEO, Coinbase planned to change its listing process over the next few quarters “to try and prevent on-chain data giving signal to watchful traders,” to allow users to rate and review assets and invest more in forensic tools.
“There is always the possibility that someone inside Coinbase could, wittingly or unwittingly, leak information to outsiders engaging in illegal activity,” said the Coinbase CEO. “We have zero tolerance for this and monitor for it, conducting investigations where appropriate with outside law firms [...] If these investigations find that any Coinbase employee somehow aided or abetted any nefarious activity, those employees are immediately terminated and referred to relevant authorities (potentially for criminal prosecution).”
According to Armstrong, employees are limited to trading crypto on Coinbase’s platforms by its company policies to monitor transactions and “stay ahead of possible abuse.” However, Cointelegraph reported in April that some online sleuths alleged certain investors had insider knowledge of which tokens Coinbase was considering listing in the second quarter of 2022 based on blockchain records of purchases prior to the exchange releasing that information.
Found an ETH address that bought hundreds of thousands of dollars of tokens exclusively featured in the Coinbase Asset Listing post about 24 hours before it was published, rofl pic.twitter.com/5QlVTjl0Jp— Cobie (@cobie) April 12, 2022
The Coinbase CEO said “some market participants” might have been able to take advantage of its listing process by using on-chain data to monitor the exchange testing asset integrations as well as detecting small differences in the platform’s application programming interface, or API, responses. He added that the exchange wouldn’t “catch everything,” but would aim to work with other crypto firms and respond to feedback to adjust policies as needed.
“While this is public data, it isn’t data that all customers can easily access, so we strive to remove these information asymmetries,” said Armstrong. “We review assets as quickly as possible, and list everything we can — as long as we believe it’s safe and legal.”
A Coinbase listing can often result in a sudden price surge for a crypto project due to the size and popularity of the exchange. In May 2020, the price of OMG Network's token OmiseGo surged 200% within 15 minutes of being listed on Coinbase before crashing. Morpheus Labs (MITX), Kromatika (KROM) and Big Data Protocol (BDP) — all tokens Coinbase named as being under consideration for listings — showed gains of 185%, 145%, and 204%, respectively, shortly following the exchange's announcement in April 202.