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The Coinbase (NASDAQ: COIN) exchange is being sued for delisting wBTC, the ‘wrapped’ version of BTC, after the company that issued wBTC struck a partnership with a company affiliated with controversial Tron founder Justin Sun.
On December 13, BiT Global Digital Limited filed a lawsuit against Coinbase Global Inc. in the U.S. District Court for the Northern District of California. The suit accuses Coinbase of engaging in anti-competitive behavior by delisting wBTC on November 19, not long after Coinbase announced the launch of cbBTC, its in-house version of wrapped BTC.
The concept behind ‘wrapping’ BTC is to allow the token’s holders to use it in decentralized finance (DeFi) projects on other blockchains that aren’t as functionally inept as BTC. The BTC network was infamously neutered nearly a decade ago by the BTC Core developers, who preferred to constrain the network’s functionality in favor of serving a more limited ‘digital gold’ role.
BiT Global claims that the wBTC delisting amounts to Coinbase “effectively kicking its competitor off of the platform and depriving the market of the ability to trade wBTC.” Coinbase’s “plan to delist wBTC is clearly aimed to force its public cryptocurrency users who wish to use wrapped BTC into using cbBTC, which is predatory and unfair competition that violates both federal and state law.”
The complaint describes Coinbase’s growth into a dominant player in the U.S. exchange market, and Coinbase’s alleged decision “to use that power to replace cryptocurrencies created by others with its own knock-off versions—with Coinbase taking short term-losses to keep profits for itself longterm as its knock-off gains market share. And wBTC is Coinbase’s first target.”
BiT Global alleges that Coinbase is prioritizing cbBTC in part as a way to boost adoption of Base, the company’s Ethereum ‘layer 2’ network that launched last year. Total value locked (TVL) on Base recently topped $4 billion, surpassing former layer 2 leader Arbitrum and accounting for nearly one-third of all layer 2 activity.
Coinbase has been subsidizing Base’s adoption by reducing/eliminating fees in order to boost market share. BiT Global claims this generosity will vanish once Coinbase has reduced/eliminated its competition, allowing it to reimpose fees that users may opt to begrudgingly pay rather than shift their assets to yet another platform.
BiT Global is asking the court for a judgment that Coinbase’s actions were unfair and unlawful, requiring serious financial penalties—including punitive damages that reflect wBTC’s loss of aggregate value “in excess of one billion dollars”—plus disgorgement of “all revenues, profits and unjust enrichment” that Coinbase derived from its “deceptive business practices.”
What’s more of a joke: wrapped BTC or a memecoin?
BiT Global notes that “no written decision or reasoning [for the delisting] was ever published or given to wBTC, and there is no process for wBTC to appeal against any decision.”
The complaint quotes Coinbase’s official statement that the company “regularly monitor[s] the assets on our exchange to ensure they meet our listing standards.” A Coinbase spokesperson subsequently claimed that “wBTC no longer meets these standards,” without offering specifics.
But BiT Global claims that Coinbase “had not raised any issues with wBTC” prior to its announcement of its intention to delist wBTC as of December 19. BiT Global claims that Coinbase has yet to publicly state “what listing standards wBTC does not meet.”
BiT Global twisted the knife by claiming that Coinbase “has virtually no standards for what can be listed at all.” The complaint cited the exchange’s recent decisions to list several utility-free memecoins—PEPE, Dogwifhat and Mog Coin—“which unlike wBTC have no inherent value other than demand created by their memetic potential as jokes.” These tokens “while humorous, could not even remotely have survived the kind of review that Coinbase pretends to do for its platform.”
Kevin Kneupper, an attorney at the firm representing BiT Global, stated that the delisting of wBTC “sets a terrible precedent for everyone in the cryptocurrency space. If an exchange of Coinbase’s size can delist a cryptocurrency just as it plans to launch its own competing product, who’s safe? And who’s next?”
BSV token holders have their own perspective on Coinbase’s listing standards, given that the exchange declined to list BSV at all, despite the token at one point being in the top-five of market capitalization rankings. As such, Coinbase spared itself the indignity of participating in the controversial 2019 delistings of BSV by Binance, Kraken, and others on similarly anti-competitive grounds.
Coinbase’s claims of being ‘asset agnostic’ just took another blow with the December 16 announcement of the launch of Ripple Labs’ new RLUSD stablecoin. Despite RLUSD winning the approval of the New York Department of Financial Services, RLUSD will not be available via Coinbase, at least not immediately, presumably due to Coinbase’s partnership with Circle on the USDC stablecoin. Perhaps if RLUSD adopted a logo wif a hat…
Don’t let the Sun go down on you
Coinbase’s decision to delist wBTC does appear to have some narrative justification beyond the self-interested and anti-competitive promotion of cbBTC.
Custody of the BTC tokens representing the amount of wBTC issued on other blockchains was originally handled solo by BitGo, but the company announced a new “multi-jurisdictional” partnership with BiT Global in August. BiT Global is a Hong Kong-based company in which Justin Sun has an ownership stake.
To say the reaction from the wBTC community was negative would be a serious understatement. Despite BitGo insisting that the structure of the partnership precluded Sun from pulling any funny stuff, his colorful history in the blockchain space ensured alarm bells rang out across the ecosystem.
On December 13, Sun tweeted that wBTC’s delisting was a 180° shift from Coinbase CEO Brian Armstrong’s previous statements that Coinbase’s “goal is to list *every* asset where it is legal to do so.” Sun cited this quote to rebut a tweet by Coinbase’s chief legal officer Paul Grewal defending the exchange’s decision to delist wBTC.
In response, Grewal tweeted that Sun appeared to “conveniently ignore that our standards require safety and legality,” adding, “I look forward to your deposition under oath in California.” Sun reportedly hasn’t set foot on U.S. soil since the pandemic, allegedly due to reports of unsealed indictments by the U.S. Department of Justice (DOJ) for suspected fraud and money laundering.
I’d advise against it
Sun is rarely far from controversy, including his recent purchase of $30 million worth of WLFI, the ‘governance’ token of World Liberty Financial (WLF).
WLF is a DeFi project associated with Donald Trump and his three sons that had a disappointing debut in October. Sun’s mega-buy of WLFI pushed the total number of tokens sold over the threshold for profit sharing with a Trump-owned Delaware corporation, resulting in a $15 million windfall for Trump.
In certain circles, WLF was already viewed as a significant conflict of interest for the president-elect, given Trump’s vocal support for all things ‘crypto’ and his administrative appointments ensuring a far more favorable U.S. regulatory environment.
But Sun’s post-purchase appointment as a WLF ‘advisor’ is raising additional concerns, including what it might mean for the civil charges filed against Sun by the U.S. Securities and Exchange Commission in 2023.
The Sun-backed TRON blockchain’s alleged popularity with Islamic terror groups, particularly in connection with the Tether (USDT) stablecoin, has been cited in mainstream media reports and within the halls of Congress. These reports resurfaced last week following Sun’s WLFI purchase, along with newfound concerns regarding Sun’s involvement in WLF.
Reuters quoted Kathleen Clark, a professor at Washington University in St. Louis who specializes in government ethics, saying there were “red flags all over” Sun’s WLF involvement. In addition to the allegations regarding Tron’s popularity with groups like Hamas and Hezbollah, Clark warned that foreign individuals seeking Trump’s favor could follow Sun’s lead and make similar ‘investments’ in WLF.
Contacted by Reuters, a Tron spokesperson didn’t specifically address the terror issue, saying only that the network “has attracted both lawful users and those with illicit motives.” The company further claimed that it “has taken proactive measures to address the risk of illicit activities on its network.”
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