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Who’s Afraid of Gary Gensler? Coinbase Braces for a Fight

Who's Afraid of Gary Gensler? Coinbase Braces for a Fight

If it wasn’t clear enough that SEC chairman Gary Gensler considers most crypto tokens to be securities of the many times he has said so, the SEC started walking the walk instead of just talking two weeks ago. It accused a former Coinbase product manager of insider trading and listed nine specific tokens as unregistered securities in his complaint.

It strikes me as the biggest crypto news of the summer yet, with the most far-reaching 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 were in an internal Coinbase spreadsheet of tokens it intended to list, but never did.)

The nine projects behind these tokens have been remarkably quiet in response to the SEC fingering them. Coinbase doesn’t have that.

The response to Chief Legal Officer Paul Grewal’s Coinbase blog post was titled, “Coinbase does not list securities. End of story.” Grewal wrote, “None of these assets are securities. Coinbase has a rigorous process of analyzing and reviewing each digital asset before it is made available on our exchange… this process includes an analysis of whether the asset can be considered a security .”

But of course it’s not the end of the story. It’s just the beginning. Gensler won’t say, “Oh never mind, Coinbase says it’s not securities.”

In response to the SEC’s token list, Binance has delisted AMP, the only one of the nine listed on Binance US. It said it did this out of an “abundance of caution”. This was an effective trolling of rival Coinbase, which cannot afford to remove any of the tokens.

The last time the Securities and Exchange Commission got behind Coinbase for a specific product or asset was a year ago, when it threatened to sue if Coinbase went ahead with its planned high-yield Lend offering. At the time, Ripple CEO Brad Garlinghouse, who has been battling the SEC since 2020, tweeted a “Die Hard” meme to Coinbase CEO Brian Armstrong: “Welcome to the party, buddy.” Mark Cuban also urged Armstrong to “go on the offensive.”

But 13 days after the SEC threat, Coinbase relented and dropped the product.

This time, the company can’t fall back so quickly. Removing the tokens, a source at Coinbase told me, would “undermine our entire position”.

On the same day that the SEC labeled nine token securities, Coinbase filed a “regulatory petition” calling on the agency to put forward a new regulatory framework for digital assets. Coinbase rival FTX wants the same; all exchanges do that.

In an interview with FTX CEO Sam Bankman-Fried on Friday for the next episode of our gm podcast, I asked about the nine tokens.

“What I’d most like to see are regulatory frameworks, registration form frameworks, coming out for both platforms and assets, and I’m optimistic we’ll see some from multiple agencies over the next year,” he said. “That doesn’t mean you can’t make decisions in the meantime. That doesn’t put you in a position where it’s impossible to judge what something is… and it’s very intentional that we listed fewer tokens on FTX US than many have platforms.”

That sounds like a shade of shadow at Coinbase for listing so many tokens in the first place, a strategy that has brought the company a lot of criticism for opening its floodgates to so many “shitcoins.” But now Coinbase must stick to its approach and challenge Gensler on behalf of its peers.

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