Coinbase sidesteps own protocols, lists XRP

Coinbase, an exchange renowned for its vigilance on regulatory issues, has finally added XRP to its Coinbase Pro platform.

This follows an extended period of limbo in which questions of centralization, and ongoing lawsuits, have hung over the contentious cryptocurrency.

Why XRP has finally been added, however, remains unclear — and the community is divided on whether or not these actions can be seen as redemption for the crypto, or simply a sign of changing times for Coinbase.

A flexible Digital Asset Framework

American exchanges like Coinbase, Circle and Gemini have historically exercised strict control over the assets they list — requiring adherence to certain principles to help them stay on the right side of regulators, and potentially endear themselves to institutional investors.

Although Coinbase has never issued a public statement explaining the exclusion of XRP, the company’s own Digital Asset Framework offers a set of requirements that cryptocurrencies must meet in order to be listed — a framework which many suggest has now been breached by the XRP listing.

Point three of the framework, which relates to centralization, is thought by many to be in direct contravention of XRP — which is held in the majority by Ripple Labs, who are also thought to exercise singular control over the nodes supporting the network.

This contradiction is pointed out by research firm Diar in its latest newsletter, which suggests that by adding the altcoin to its Pro platform, Coinbase is making a mockery of its own principles: "Coinbase has now clearly abandoned one of their own pillars for the potential listing of a cryptocurrency. In their own Digital Asset Framework that outlines requirements to be listed, the exchange states that ‘the ownership stake retained by the team is a minority stake’, a fact far from reality as Ripple holds nearly 60% of the supply in escrow with a release schedule." reads the Digital Assets and Regulations newsletter.

The ongoing court case

The apparent centralization of XRP has also led to another complication for the cryptocurrency: allegations of unregistered security status.

For most of 2018, Ripple was locked in a class action lawsuit filed by investors who alleged that they were sold unregistered securities, and that executives manipulated XRP prices to maximize Ripple’s profits. This created a great deal of uncertainty around the token and its status, and is widely thought to have cautioned the likes of Coinbase against listing XRP.

But, some suggest recent developments in the case could have made the crypto less of a potential liability.

In late November last year, Ripple attorneys argued successfully for the removal of a consolidated Superior Court class action to the Federal Court. Lawyer Stephen Palley suggests this move could have been either an attempt to slow the case down, or a way of trying to secure a more favourable outcome by dragging the case through the Federal Court, which is thought to offer more favourable outcomes to corporate defendants.

If, as Palley suggests, this development represents a de-escalation of the legal situation, then it could have made XRP less of a potential liability for Coinbase.

A more competitive crypto landscape

Alternatively, others suggest that an increasingly competitive exchange market might mean Coinbase can no longer afford to prioritise regulatory compliance over the race to maximise revenue by accommodating as many altcoins as possible.

Total volume for Coinbase Pro, Binance, Bitstamp, Kraken, Bitfinex, and UPbit since August 2017 shows Binance’s rapid rise to dominance over Coinbase and other major exchanges.

Over the last few months, Coinbase has gradually pivoted — moving from a slow cautious exchange that rarely listed new assets, to a more open platform that, in its own words, intends to eventually "offer customers access to greater than 90 percent of all compliant digital assets".

But, despite the introduction of several new assets in recent times, relative volume on Coinbase Pro remains low: with only $55 million traded over the** **past 24 hours, compared to $721 million traded during the same period on Binance.

As crypto attorney Jake Chervinsky suggests, the "indiscriminate" listing of exchanges like Binance could have helped Coinbase make the decision to list XRP: "I don’t want to speculate too much, but it’s not unusual for companies to align their risk tolerance with competitors, and most exchanges have been listing assets indiscriminately. It seems Coinbase would rather be aggressive than compete with Gemini as "most regulated exchange" tweeted Chervinsky.

Security or not, the status of XRP might soon be of little concern to Coinbase, who last summer acquired three broker dealers — Keystone Capital Corp., Venovate Marketplace and Digital Wealth LLC — to help it become a regulated platform for trading securities.

But, as Chervinsky points out, even regulated securities dealer status won’t give them "absolute immunity" from the consequences of selling unregistered securities.