Coinbase Changing Listing Guidelines as Allegations of Front Running Come Out

Brian Armstrong, CEO of Coinbase, responded to recent allegations that traders are taking advantage of the exchange’s listing process, writing in a blog post that the company would be implementing new guidelines in the near future.

The response was fueled by claims of an Ethereum trader gaining access to a shortlist of coins Coinbase was considering listing on its exchange before it was ever released to the public. Apparently, the lucky individual was able to buy $400,000 worth of those coins that were on the list, and the next day his portfolio would increase by 42%.

As claimed by Armstrong, the company would no longer make its shortlist available to the public, only announcing assets after it had made the decision to list them. Going further, those announcements will even be made before any technical work is done for implementation.

This is meant to be a stop-gap towards frontrunning, a term usually used when speaking of the regular financial markets, and refers to using inside information to make a trade ahead of the news release.

Certain traders involved in front running had been able to figure out which coins were going to be listed on Coinbase before they actually emerged on the platform.

This isn't the first time front running has been used in crypto, as Nate Chastain, Open Sea’s former product head, had to resign after it was pointed out by a Twitter user that he had appeared to make unethical trades.

Etherscan, the Ethereum block explorer, was used to show a wallet belonging to Nate buying NFTs before being listed on OpenSea and selling them for profit after the increased exposure had led to them ballooning in price.

The trader who had made the $400,000 play has not been ousted as an insider by Coinbase, though Armstrong mentioned in the post about Coinbase’s partnership with blockchain forensic firms, that check to see if any antithetical trades can be traced back to employees.

The Coinbase CEO described a few ways that external individuals could be taking part in frontrunning.

“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,” Armstrong wrote. “While this is public data, it isn’t data that all customers can easily access, so we strive to remove those information asymmetries.”

An unspoken truth of many financial industries is the amount of front running that truly does happen. You find it less on Wall Street as the penalty is a pretty hefty prison sentence, but in the wild west that is crypto regulations, nothing is stopping or scaring people from committing these crimes. One could see why Coinbase felt the need to respond quickly to these allegations, as a tipoff to the government could lead to unwanted eyes and publicity for the crypto giant.