Coinbase Insider Trading Scandal: What Really Happened?

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Hello and welcome to Protocol Fintech. This Friday: Insider trading on Coinbase’s bid for transparency, new revelations about the Axie hack, and Citi’s tech spending spree.

out of the chain

What does North Korea have against play-to-earn games? At least with Sony’s hack, there was a clear motivation: the Hermit Kingdom’s anger at the movie studio over “The Interview,” which fried its dear leader. But the evidence that links a North Korean hacking group to the Axie Infinity heist is more curious. Maybe hackers really, really hate NFT games?

—Owen Thomas (E-mail | Twitter)

A murky bid for transparency

Coinbase made a big push this week to be more transparent. But his plan to give the crypto market a warning about the tokens he plans to list just made things murkier, prompting accusations of insider trading.

The uproar highlighted how, despite its spectacular growth, crypto faces a difficult and often tricky path to legitimacy, with few guardrails in place despite much talk about the need to regulate the space.

Full disclosure seemed like a smart move for Coinbase. The company announced Monday it would begin publishing a list of tokens being considered for listing in “an effort to increase transparency by providing as much information symmetry as possible.”

  • Speculators have long been agitating for Coinbase and other major exchanges to list their favorite cryptocurrencies, believing that such support offers both legitimacy and liquidity, especially for newer tokens.
  • Coinbase had previously kept its plans close to the vest, so the unexpected decision to unveil a roadmap caused a lot of headaches.
  • A well known crypto podcaster, Jordan Fish, who goes by Cobie in the community, quickly provided a theory. Fish said on Tuesday that he found an Ethereum wallet that had “purchased hundreds of thousands of dollars” of tokens “exclusively featured” in the Coinbase listing “about 24 hours before it was released.”

Does Coinbase have an insider trading problem? The scheme described in Fish’s tweet is a classic bet, a bet based on inside information: in this case, the listing of a cryptocurrency on a major exchange like Coinbase.

  • Coinbase’s large customer base means that listing a token usually drives its price up. The company “didn’t have anything further to share” about the listing announcement, a spokesperson told Protocol.
  • Crypto exchanges have faced allegations of insider trading in the past. In 2019, there were allegations that Coinbase employees purchased Bitcoin Cash before it was listed. In 2021, the CFTC investigation Binance for insider trading. (Binance said at the time that it had a “zero tolerance” policy against insider trading.)
  • Amid raging debates over how to regulate crypto, adopting a new token disclosure policy makes sense for Coinbase “given that crypto is desperately trying to be legit,” said Stanford professor Rob Siegel. Graduate School of Business. “Maybe it’s just Coinbase doing good governance and pushing it now in order to ‘stay clean’.”

But the moment is really strange. The disclosure message came across as “an odd attempt at damage control,” said Alex Johnson, author of the Fintech Takes newsletter. This “makes it look like Coinbase knew someone had an informational advantage and had already acted on it,” he said. Now the question is whether regulators will act.

—Benjamin Pimentel (E-mail | Twitter)

A version of this story first appeared on Protocol.com. Read it here.

A MESSAGE FROM CHECKOUT.COM

The emergence of DeFi is changing the way consumers think about how they store value. For reference, Visa recorded $2.5 billion in crypto transactions in the first quarter of 2022. We see consumers starting to really use it in a way that even a year ago was rather hypothetical.

Learn more

on the money

The Manhattan District Attorney’s Office charged a man with operating unlicensed Bitcoin ATMs. Robert Taylor, a resident of New York, was reportedly run illegally 46 bitcoin ATMs in New York, New Jersey and Miami, charging customers up to 25% conversion fees.

China Banking Association warns investors against NFTs. The association, which also banned crypto trading last year, said NFTs could lead to speculative trading, money laundering and illegal financing.

Citi plans to spend $11 billion on technology this year. The budget represents an increase of 11% over last year and 30% over 2020. Stuart Riley, a technology manager, reported that the bank had more than 30,000 software engineers.

The central bank of Portugal granted a crypto license to a bank. Bison Bank is the first bank receive a license to operate as a virtual asset service provider. A subsidiary, Bison Digital Assets, will operate as an exchange.

The latest on the Axie Infinity hack

North Korean group Lazarus is believed to be responsible for the $622 million Axie Infinity hack last month, one of the largest DeFi hacks to date, in which the Ronin network was hacked to access funds.

While the wallet address suspected of being behind the attack has been known since the day it took place, the US Treasury Department linked the wallet address to the Lazarus Group on Thursday and sanctioned the funds by adding the address to the Office of Foreign Assets Control. List of Designated Nationals. Some of the funds have already been laundered, according to blockchain analytics firm Elliptic.

Learn more at Protocol.com.

—Lindsey Choo (E-mail | Twitter)

Table

March was a troubling month for the NFT market, with dollar values ​​of trades plummeting and rumors of a bubble bursting. The arrest of suspects in the Frosties rug draw has reminded buyers of the risks involved in buying these digital art projects. But there were also encouraging indicators. The number of wallets trading NFTs did not decline as much and showed signs of recovery in early April.

A MESSAGE FROM CHECKOUT.COM

Businesses – whether web2 or web3 oriented companies that don’t want to hold crypto but want to be able to interact with crypto holders – want to be able to offer this as a payment mechanism to their communities. The other is convenience, where merchants are comfortable accepting crypto.

Learn more

Thanks for reading – see you Monday!

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