[Coinbase] An update on our asset listing processes
By Brian Armstrong, CEO and Cofounder
Tl;dr: We review assets as thoroughly and quickly as possible, and list everything that we can safely and legally. But there is always more we can do to improve our asset listing process.
Recently, members of the crypto community have told us that they don’t always understand why Coinbase lists certain assets and not others. We’ve also received reports of people appearing to buy certain assets right before we announced they’d be listed on Coinbase, allowing them to benefit from price movements that sometimes accompany our listing announcements.
These are two different issues, but they both relate to our asset listing process. So, I want to address both of them here, and talk about some additional improvements we’ll be putting in place.
At Coinbase, our goal is to list every asset that is legal and safe to do so, so that our customers are protected but we also create a level playing field for all the new assets being created in crypto. The number of Web3 crypto assets are exploding, with a collective global market cap of ~$2 trillion, and we want to make sure we enable the important innovation happening in this industry. Some crypto startups just getting off the ground today will become major companies in the future. Customers benefit from these innovations, but we also have a role to play protecting customers from scams and fraud. On top of all this, we want to avoid getting in the business of picking winners and losers, because we are not investment advisors. So how does one navigate this tricky space? We do it by setting minimum listing requirements (tests for legality, security, compliance, etc), and after that letting the market decide. We may also de-list assets if they stop meeting our requirements, or new information becomes available.
This process of reviewing and listing assets is rigorous and time consuming. Some assets are easier to review and list than others, due to technical details. ERC-20 tokens, for example, are relatively simple to evaluate and integrate technically so we can generally do so fairly quickly. However, assets built on new chains are more technically complex and harder to support. We would like to list all chains that meet our listing standards, but if it requires more work to do so, they may not be listed in the order some customers expect.
To some, this looks like we’re playing favorites. In reality, we review assets as quickly as possible, and list everything we can — as long as we believe it’s safe and legal. We believe that the market will ascribe value over time.
We’re also aware of concerns that some market participants may be taking advantage of information from our listings process. Examples of this might include using on-chain data to detect when Coinbase might be testing new asset integrations or using small differences in Coinbase API responses to detect when assets might be configured, but not yet launched. While this is public data, it isn’t data that all customers can easily access, so we strive to remove these information asymmetries.
Finally, there is always the possibility that someone inside Coinbase could, wittingly or unwittingly, leak information to outsiders engaging in illegal activity. We have zero tolerance for this and monitor for it, conducting investigations where appropriate with outside law firms. These firms review our listing systems and tools, leveraging blockchain forensic analysis to trace transactions, and search for possible social or professional links between Coinbase employees and those engaged in any front-running activity. 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).
Like all publicly traded companies, Coinbase has a trading policy in place that restricts when employees and other insiders can buy or sell company stock. But our trading policy goes well beyond this, and also prohibits employees and contractors from trading crypto assets on material non-public information, such as when a new asset will be added to our platform. We mandate that all employees trade crypto only on Coinbase’s trading platforms (where the asset is supported) so we can look out for prohibited trading activities. And we have a dedicated Trade Surveillance team that utilizes advanced software to investigate and stay ahead of possible abuse.
We know our asset listing process can always be better. So today I want to share some changes that we plan to implement over the next few quarters, in part based on feedback from the community:
Improving when we publish our decisions to list
Going forward, we plan to publish externally once a decision has been made to list an asset, but before any technical integration work begins, to try and prevent on-chain data giving signal to watchful traders. In addition, we plan to publish only once a decision has affirmatively been made to list, vs when we’ve decided to consider listing an asset.
Specially labeling newer and less proven assets on the platform
In March, we announced a new experimental label on asset pages and a disclosure when executing trades for some assets. Some assets are suitable only for more advanced traders, and we want to make sure customers know the potential risk involved. We’ll continue to develop labels and features that provide clarity for our customers.
Asset ratings and reviews
Coinbase already provides some basic information about each asset so customers can make informed decisions. Now we’re going to take it up a level by launching asset ratings and reviews so the community can share additional information on each asset, whether we list them or not.
Many consumer services today utilize the wisdom of crowds to help consumers make more informed buying decisions (Airbnb, Uber, Amazon, etc). We believe ratings and reviews can help create additional consumer protections in crypto, and ideally these can be decentralized in new protocols over time. We recognize that special care will be needed to avoid fake accounts or sybil attacks and to keep reviews high quality. We plan to launch a beta of this feature later this year.
Investing even more in screening assets and detecting potential frontrunning
We’re continuing to improve our capability to evaluate assets, by looking at the tokenomics of assets, and using on-chain forensic tools to evaluate each project. We’re also working to ensure we can move quickly to delist assets that appear to be experiencing bad activity.
We won’t catch everything, but these investments will help us get better, and we may be able to open source these approaches and standards to the industry over time so we can all learn from them together. We’d love to work more closely with other crypto companies to compare notes and develop best practices.
These are still early days for crypto, and it’s going to take time for us to figure everything out. What we can promise is that we’ll keep listening to our customers, keep looking for ways to improve, and keep holding ourselves to the highest standards as this space evolves. It’s always tricky to find the right balance on enabling innovation while simultaneously protecting customers from bad activity, but that is exactly the hard work that we need to do each day.