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

If it wasn’t clear enough already that SEC Chair Gary Gensler views most crypto tokens as securities from the many times he has said so, two weeks ago the SEC began walking the walk instead of just talking. It charged a former Coinbase product manager with insider trading, and in its complaint listed nine specific tokens as unregistered securities.

It looks to me like the biggest crypto news of the summer so far, with the most wide-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 planned to list, but it never did.)

The nine projects behind these tokens have been conspicuously silent in response to the SEC fingering them. Coinbase has not.

The Coinbase blog post retort from chief legal officer Paul Grewal was titled, “Coinbase does not list securities. End of story.” Grewal wrote, “None of these assets are securities. Coinbase has a rigorous process to analyze and review each digital asset before making it available on our exchange… this process includes an analysis of whether the asset could be considered to be a security.”

But of course, it is not the end of the story. It is just the beginning. Gensler will not say, “Oh, nevermind, Coinbase says they aren’t securities.”

Binance, in response to the SEC’s token list, delisted AMP, the only one of the nine that was listed on Binance US. It said it was doing so out of an “abundance of caution.” This was some effective trolling of rival Coinbase, which cannot afford to delist any of the tokens.

Last time the SEC came after Coinbase for a specific product or asset was one year ago, when it threatened to sue if Coinbase moved forward with its planned high-yield Lend offering. At that time, Ripple CEO Brad Garlinghouse, who has been fighting the SEC since 2020, tweeted a “Die Hard” meme at Coinbase CEO Brian Armstrong: “Welcome to the party, pal.” Mark Cuban also urged Armstrong to “go on the offensive.”

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

This time the company cannot back down so quickly. Delisting the tokens would “undercut our whole position,” as a source at Coinbase told me.

On the same day the SEC labeled nine tokens securities, Coinbase filed a “petition for rulemaking” calling on the agency to put forth a new regulatory framework for digital assets. Coinbase rival FTX wants the same thing; all the 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, coming out for both platforms and assets, and I’m optimistic that over the next year we will see some from multiple agencies,” he said. “That doesn’t mean you can’t make decisions in the meantime. That doesn’t put you in a position where it is impossible to judge what anything is.. and it’s very intentional that we have listed fewer tokens on FTX US than many platforms have.”

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