Coinbase: Reports of 20% of our volume being self-trading are false
The attorney general's office seems to have fumbled some of its interpretations of the provided data.
The New York attorney general's Virtual Markets Integrity Initiative report came back with a range of unpleasant findings, including that even the most reliable exchanges are filled with conflicts of interest, self-trading, a near-total lack of consumer protections and ongoing failures to even attempt to address market manipulation.
One of the more widely discussed figures that came out in the report was that almost 20% of Coinbase's trading volume is attributable to Coinbase's own trading. That's a lot, especially for a highly regarded platform, and people reacted with appropriate astonishment.
Coinbase has since clarified though, with Mike Lempres, Coinbase's chief policy officer, explicitly stating in a blog post that "Coinbase does not engage in proprietary trading."
"Coinbase does not trade for the benefit of the company on a proprietary basis. In order to provide an easy-to-use customer experience, Coinbase Consumer quotes a price and then quickly fills the order from our exchange platform (Coinbase Markets). This takes advantage of the liquidity provided by the entire Coinbase ecosystem.
"When Coinbase executes these trades, it does so on behalf of Coinbase Consumer customers, not itself," Lempres explains.
The post tactfully avoids pointing the finger at the New York attorney general's office, and instead said "some media coverage inaccurately characterized the report's findings."
The rules of the blame game
Coinbase's legal head naturally wants to stay on good terms with the New York attorney general. But in this case, the error was clearly on the attorney general's side, which clearly describes Coinbase's disclosed self-trading as "proprietary trading."
The exact words were:
"Coinbase disclosed that almost twenty percent of executed volume on its platform was attributable to its own trading. Such high levels of proprietary trading raise serious questions about the risks customers face on those platforms."
It's a small and easy mistake to make, based on the information provided, but the consequences for exchanges are very real. It also speaks to many of the criticisms launched at the investigation, most notably from the Kraken exchange which declined to participate in the initiative.
The general tenor of its complaints is that the New York attorney general approached exchanges unprepared and as a disciplinarian rather than as a learner despite assurances that the entire exercise was purely a fact-finding mission. This might be echoed by the apparent tendency of the office to assume the worst before comprehensively following up on some pretty serious accusations.
When your results say that one of the world's largest digital asset platforms is apparently admitting to self-trading 20% of its own volume, that's the kind of thing you should probably double check.
And for what was supposed to be a purely educational exercise, this venture sure ended up with a lot of referrals to the Department of Financial Services for potential misconduct.
A more conspiratorially inclined person might say it almost looks as if the report was rushed out the door to meet a deadline.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.