Why billionaire Justin Sun is the key to Coinbase’s defence against BiT Global

A mates of months ago, a Coinbase squad made a large telephone — it decided to delist a mentation of Bitcoin that runs connected Ethereum, a cryptocurrency the speech had offered customers since 2020.

Why the abrupt change?

According to tribunal documents, Coinbase suspected that Justin Sun, the billionaire laminitis of the Tron blockchain, exerted “potential control” implicit alleged wrapped Bitcoin, oregon wBTC.

Sun’s relation was a dealbreaker, they decided.

“He has repeatedly been accused of, investigated for, and sued for fiscal misconduct,” attorneys for Coinbase wrote successful court papers. “Reports of his alleged misdeeds abound successful the property and crypto assemblage much broadly.”

Crying foul

Up until precocious past year, Coinbase didn’t person an contented with wBTC. That changed aft its archetypal issuer, BitGo, made a woody with Sun and Hong Kong-based custodian BiT Global.

For Coinbase, Sun’s undefined relation violated the “safety and legality” standards it employed to vet the 271 cryptocurrencies disposable for trading connected its platform.

But BiT Global cried foul.

In a lawsuit filed successful national tribunal successful San Francisco connected December 13, the task accused Coinbase of abusing its marketplace powerfulness and dumping wBTC successful favour of listing its ain mentation of wrapped Bitcoin.

As a result, BiT Global said wBTC’s circulating proviso had slid 5%, a nonaccomplishment of hundreds of millions of dollars.

In a astonishing determination that acceptable the crypto ineligible assemblage abuzz, BiT Global invoked a 135-year-old instrumentality utilized to interruption up Gilded Age monopolies specified arsenic Standard Oil — the Sherman Antitrust Act.

Coinbase, which denied the allegations successful tribunal papers, declined to remark connected the litigation and directed DL News to posts made connected societal media by its main ineligible officer.

Representatives for Sun, who is not a enactment successful the case, did not respond to DL News’ requests for comment.

‘In the lawsuit of wrapped Bitcoin, Coinbase viewed it arsenic conscionable different currency grab.’

The suit seemingly marks the archetypal clip a blockchain task has utilized the Sherman Antitrust Act successful commercialized litigation, crypto lawyers say.

“Private antitrust lawsuits person yet arrived successful crypto,” Bill Hughes, elder counsel astatine Consensys and a erstwhile Department of Justice attorney, wrote connected X.

So, too, has the contented of marketplace dominance.

“Crypto is precise focused connected distributing powerfulness — from larger, concentrated entities to, astatine least, much entities oregon to individuals,” Orlando Cosme, a crypto lawyer, told DL News.

“That’s the ethos of the space, yet successful a batch of antithetic markets, you bash spot concentrated power, whether it beryllium Coinbase and Binance oregon Uniswap.”

First target

The lawsuit could propulsion backmost the curtain connected however Coinbase decides which cryptocurrencies get listed, oregon delisted, from a level that handles astir $8 billion successful regular trading volume.

Coinbase axed wBTC 3 months aft it launched its ain competing product: cbBTC, which present has a market value of $2.4 billion.

BiT Global suggested this isn’t a coincidence.

“Like each the centralised tech giants earlier it, Coinbase gives articulator work to the innovation of a decentralized world,” BiT Global attorneys wrote.

“It has present embarked connected an effort to usage that powerfulness to regenerate cryptocurrencies created by others with its ain knock-off versions, and wBTC is Coinbase’s archetypal target,” they argued.

Nonsense, said Coinbase lawyers.

In the documents, they contend Coinbase faces “robust” contention from different exchanges successful the US. Moreover, they said Coinbase handled little than 1% of each wBTC trading volume, astir of which occurred connected Binance and Uniswap, a blockchain-based exchange.

‘Coinbase should beryllium capable to enforce its listing standards, which support its customers from fraud and actors similar Mr. Sun.’

Coinbase prevailed successful the archetypal ineligible skirmish erstwhile a national justice declined to assistance BiT Global’s petition to halt wBTC’s delisting.

“BiT Global does mean to beryllium the lawsuit done trial. It is not dropping the suit,” Cyclone Covey, a lawyer astatine Kneupper & Covey representing the company, told DL News.

Sun’s role

Hovering implicit the suit is Sun, a crypto mogul who precocious made headlines for spending $6.2 cardinal connected a portion of conceptual creation that featured a banana duct-taped to a wall. He past livestreamed himself eating it.

The time aft BiT Global sued Coinbase, Paul Grewal, the exchange’s main ineligible officer, challenged Sun to sermon “safety and legality” standards for listed cryptocurrencies.

“I look guardant to your deposition nether oath successful California,” Grewal said connected X. “No request to bring a banana.”

Sun said helium would beryllium blessed to larn more. “Btw: I’m not straight progressive successful this case, conscionable a spot curious,” helium tweeted.

Coinbase wasn’t the lone organisation that got tense astir Sun’s engagement with BiT Global and wBTC.

In September, a hazard advisor astatine Sky, the DeFi protocol formerly known arsenic Maker, concisely recommended dumping wBTC arsenic stablecoin collateral owed to Sun’s involvement, according to posts connected the protocol’s governance forum.

Wrapping Bitcoin

Offerings specified arsenic wBTC marque it imaginable to determination Bitcoin onto much performant blockchains specified arsenic Ethereum.

Users “wrap” their Bitcoin by handing it implicit to a custodian, specified arsenic BiT Global. The custodian past mints a caller token connected Ethereum. The “wrapped” Bitcoin is instantly redeemable for the Bitcoin held successful custody, and, arsenic such, trades astatine par with that Bitcoin.

That makes it imaginable to, say, usage one’s Bitcoin arsenic collateral erstwhile taking retired a indebtedness connected an Ethereum-based lender, similar Aave.

While determination are galore kinds of wrapped Bitcoin, wBTC is the astir popular, with a marketplace worth conscionable implicit $13 billion, according to data compiled by crypto plus manager 21.co.

In August, BitGo, the archetypal issuer of wBTC, announced it was entering into a associated task with BiT Global that would amended the cryptocurrency’s information by splitting custody of the underlying Bitcoin betwixt the 2 companies.

But the property merchandise mentioned different partner.

“This is simply a strategical concern betwixt BitGo, Justin Sun, and the Tron ecosystem,” said the release.

Coinbase pressed BiT Global for details of Sun’s relation astatine BiT Global and imaginable power of wBTC. Yet the institution said that BiT Global didn’t afloat code those questions.

“BiT’s evasiveness exacerbated doubts,” Coinbase said successful tribunal papers.

BiT Global lawyer Covey told DL News that the institution responded to each Coinbase enquiry wholly and successful a timely manner.

‘Effective control’

Even arsenic Coinbase was trying to larn much astir Sun’s role, BA Labs, a hazard advisor astatine Sky, the DeFi protocol, was asking questions of its own.

BA Labs recovered it “highly likely” that Sun had “effective control” implicit BitGlobal, according to a post published successful September.

“Justin Sun affiliated stablecoins and custodial products person a important antagonistic way grounds and airs elevated counterparty risk,” BA Labs said.

BA Labs yet withdrew its proposal that Sky ditch wBTC aft receiving assurances that BiT Global did not person full power implicit the coin.

In its lawsuit, BiT Global confronted Coinbase’s statement astir standards by arguing that the speech had nary occupation listing memecoins specified arsenic PEPE, WIF, and MOG.

Memecoins are highly volatile and tin blindside users with melodramatic terms swings, leaving once-triumphant investors penniless successful seconds. They are explicitly and defiantly useless.

MOG, for example, informs users that it has nary worth and “is to beryllium utilized strictly for getting laid,” BiT Global said.

“Coinbase’s determination to database Mog conscionable 2 weeks aft delisting wBTC demonstrates that the determination had thing to bash with standards, and everything to bash with unfairly and fraudulently pushing wBTC retired of the market,” BiT Global attorneys wrote.

Not true, Coinbase said.

“It is communal consciousness that Coinbase should beryllium capable to enforce its listing standards, which support its customers from fraud and actors similar Mr. Sun,” the speech said successful tribunal papers.

Depositions

Now, crypto lawyers are intimately watching what happens adjacent successful this caller case.

BiT Global is going to person a hard clip proving Coinbase had ulterior motives for delisting wBTC, said Cosme, the crypto lawyer.

“All their allegations are precise speculative,” helium said.

Then again, if the lawsuit survives Coinbase’s effort to get it dismissed, BiT Global whitethorn beryllium capable to unit Coinbase to crook implicit grounds connected wherefore wBTC was delisted.

That whitethorn entail seeking depositions of cardinal executives.

And Coinbase could question the aforesaid from the BiT Global side, including Justin Sun.

Aleks Gilbert is DL News’ New York-based DeFi correspondent. You tin interaction him astatine [email protected].