• Coinbase Modifies Its Listing Policy for New Tokens Following Allegations of Front-Running

  • Coinbase CEO Brian Armstrong addressed concerns about traders abusing the business’s listing process yesterday, noting in a blog post that the company will be implementing new restrictions and features in the coming months.

    Armstrong’s letter appeared to be in response to recent reports that an Ethereum trader obtained access to a list of coins that Coinbase was considering adding to its exchange before the list was made public in a company blog post. The trader was able to purchase $400,000 worth of tokens on the Coinbase shortlist, which climbed in value by 42 percent the next day.

    According to Armstrong, Coinbase would no longer publicize its shortlist and will instead announce assets only after deciding to market them. Even yet, the business stated that those announcements will be made before any technological integration begins.

    It’s intended to be a deterrent to front-running. And the part about listing new assets before technical integration begins is crucial.

    Front-running, a term adopted from traditional financial markets, refers to making a trade ahead of the competition by leveraging insider knowledge. In some situations, crypto traders will pay extra gas costs (the cost of conducting a transaction on a blockchain) to have their transaction completed before the rest of the market in order to maximize earnings.

    Traders hoping to get a head start on Coinbase listings have been able to predict which assets will be listed before they appear on the marketplace. It’s happened before at other crypto firms, as OpenSea’s former product leader, Nate Chastain, attests.

    Chastain resigned from the popular NFT marketplace in September after a Twitter user pointed out that he appeared to be engaging in unethical trading. Data from the Ethereum block explorer Etherescan revealed that he purchased NFTs before they were published on the OpenSea webpage and resold them for a profit after the increased exposure increased their price.

    Coinbase has not stated publicly, either in the blog post or otherwise, whether the trader who purchased $400,000 in tokens before they were shortlisted was an insider. However, Armstrong stated in his blog post that the company collaborates with blockchain forensics organizations to determine whether apparent unethical trades can be linked back to workers.

    In terms of external front-runners, the Coinbase CEO explained several ways they could get an advantage over other traders.

    “Examples of this may include using on-chain data to determine when Coinbase is testing new asset integrations or using slight changes in Coinbase API answers to detect when assets are configured but have not yet been released,” Armstrong wrote. “While this is public data, it isn’t data that all customers can easily access, therefore we work hard to eliminate information gaps.”

    A Coinbase spokeswoman declined to discuss further on how the business plans to address the disparity, warning that doing so could alert malicious actors.

    In addition, the company will launch a ratings system that will allow its users to provide information about assets that are not listed on the market.

    “We believe ratings and reviews can help provide further consumer safeguards in crypto, and ideally these can be decentralized over time in new protocols,” Armstrong stated. “We know that additional attention will be required to avoid false accounts or sybil attacks and to maintain high-quality reviews.” We want to release a beta version of this feature later this year.”

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