Who’s afraid of Gary Gensler? Coinbase prepares for a fight

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

It strikes me as the biggest crypto news of the summer so far, 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 on an internal Coinbase token spreadsheet that it planned to list, but never did.)

The nine projects behind these tokens have remained remarkably silent in response to the SEC manipulation. Coinbase has not.

The reply to Coinbase’s blog post from Chief Legal Officer Paul Grewal was headlined: “Coinbase Does Not List Securities. End of Story.” Grewal wrote: “None of these assets are securities. Coinbase has a rigorous process for analyzing and reviewing each digital asset before it is made available on our exchange…this process includes an analysis of whether the asset could be considered a security.”

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

Binance, in response to the SEC token listing, has delisted AMP, the only one of the nine listed on Binance US. He said he was doing it out of an “abundance of precaution”. This was effective trolling from rival Coinbase, which cannot afford to remove any of the tokens.

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

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

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

On the same day that the SEC labeled securities of nine tokens, Coinbase filed a “rulemaking petition” calling on the agency to come up with a new regulatory framework for digital assets. Coinbase rival FTX wants the same thing; all exchanges do.

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 would most like to see would be regulatory frameworks, registration form frameworks, both for platforms and for assets, and I am optimistic that over the next year we will see some multi-agency ones,” 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’ve listed fewer tokens on FTX US.” that many platforms have.

That sounds like a shady touch on Coinbase for listing so many tokens in the first place, a strategy that brought a lot of criticism to the company for opening its floodgates to so many “shitcoins.” But now Coinbase must maintain its focus and challenge Gensler on behalf of its peers.

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