Comment by chollida1 | Hacker News Reader

Comment by chollida1 | Hacker News Reader

The big takeaway for me was that coinbase not only trades on their own exchange but accounts for 20% of its volume.

Coinbase went from being one of the "good guys" to being one of the "bad guys" really quickly here :(

There is a reason that we dont' let the exchanges trade on their own markets against their clients. It's a long learned lesson.

Especially because coinbase came out earlier and said expicilty that they don't do this

https://www.recode.net/2018/1/22/16911692/cryptocurrency-bit...

> Coinbase makes money not on bitcoin’s price but on the volume of trades — charging both the buyer and seller usually a fee between 0.25 percent and 1 percent of the total transaction size through the site. The company serves as both an exchange and a broker of deals, though it does not serve as a market maker that holds bitcoin

The NY AG has a tweet storm about this here

https://twitter.com/NewYorkStateAG/status/104209855584926515...

Question to the crypto currency community.

Who are the good exchanges now?

Where can you trade with any sort of assurance that the exchange isn't front running you or using your order flow to trade against you?

I guess this is a good place to start

https://twitter.com/dlauer/status/1042114043065126914

Also

> Circle reported that it accounted for less than one percent of the executed volume on its platform Poloniex during the most recent time period reviewed.

So the exchange backed by wall street was squeaky clean, while Coinbase comes off looking pretty poorly from an ethics stand point, that's actually a shock and pretty refreshing.

Though Wall street is alot more regulated and risk adverse so maybe that's not too surprising.

It's a bit hard for me to reconcile "twenty percent of executed volume on [Coinbase's] platform was attributable to its own trading" with "[Coinbase] does not serve as a market maker that holds bitcoin".

As far as I know, Coinbase has no investment vehicle which uses discretion to speculatively move into and out of individual cryptocurrencies.

Instead, they sometimes collect their commissions in cryptocurrencies, and they offer an index fund. To the extent they'd need to convert those commissions to fiat to cover other expenses, or acquire/discard coins for the index fund, those activities necessarily require buying/selling at market, but offer limited opportunity for manipulation.

If the "20% volume" is from these necessary activities, it's not so concerning, and (for example) forcing them to use someone else's market for these activities would be silly.

> If the "20% volume" is from these necessary activities, it's not so concerning, and (for example) forcing them to use someone else's market for these activities would be silly.

I don't agree, if they need to hedge spot for their index there is huge value in being the one that operates the venue. The activity is trading crypto and there is always an incentive to do this at the best price (doesn't matter whether you are providing liquidity, or hedging some exposure). Right now we can only assume they do this "the fair way" (eg. how we can trade on their platform - with the same information we have). But how do we know they are? For all we know the guy that needs to execute these trades is sitting next to another guy that is monitoring the exchange and everyone's stops / margin liquidation prices.

As an extremely-low-frequency user of Coinbase's services, I personally wouldn't really care if, when they make necessary crypto trades to liquidate commissions or maintain requested customer/index-fund holdings, they used their proprietary position to get a slightly-better deal.

They have to make their profits somehow. And, the ultimate check on their profits is competitive offerings. Thus a slight profit here may just help them charge less elsewhere, in the fees I explicitly pay. (I can see how a professional or high-frequency trader would feel differently, though.)

But, a further clarification from Coinbase has confirmed my skepticism of the nefarious interpretation of the "20% volume" statistic. The 20% figure s driven by trades at the direction of of customers, not for Coinbase itself. See:

https://blog.coinbase.com/correcting-the-record-coinbase-doe...

There's a million ways for a crooked exchange to fleece clients, but front-running is the most obvious and profitable way. If you're evaluating Coinbase, then start there.

>Question to the crypto currency community.

>Who are the good exchanges now?

By default there are none. All trusted third parties are security holes [1]. Can't trust any of them. But they're much easier to build to service a need, so they exist. Some are less bad than others (not an expert on exchanges but Gemini and LedgerX come to mind). But they are really just stop gaps until more decentralized options become available and mature.

[1]:https://nakamotoinstitute.org/trusted-third-parties/

I find that tweet storm problematic, she frames automated trading as a bad thing while her slide only gives information about the various policies that some crypto exchanges have about it.

wouldn't the real conversation be about what she expects here?

does she want an additional paragraph in the 40 page disclaimer? "There may be automated trading, users that enter trades manually may be at a disadvantage in reacting to market fluctuations."

I think kraken is a good one. (maybe only good one?) there price changes feel way more natural then one other exchanges. (for the lack of other words)

The report specifically calls out Kraken as extremely suspicious. This is the excerpt.

"The OAG could not review the practices and procedures of non-participating platforms (Binance, Gate.io, Huobi, and Kraken) concerning manipulative or abusive trading. However, the Kraken platform’s public response is alarming. In announcing the company’s decision not to participate in the Initiative, Kraken declared that market manipulation “doesn’t matter to most crypto traders,” even while admitting that “scams are rampant” in the industry."

In the current ecosystem, I think you have to assume all exchanges are front running. I'm not aware of any proof to the contrary, and it should be quite profitable for them.

That said, if you can identify exchanges e.g. in jurisdictions where frontrunning would be very risky, then those might be safer in that regard.

Relevant excerpt from the report:

" Trading platforms that engage in proprietary trading on their own venues uniformly told the OAG that their trading desks had no informational or other trading advantage over customers. The OAG found that significant variation exists in the amount of trading activity attributable to those platform operators. Circle reported that it accounted for less than one percent of the executed volume on its platform Poloniex during the most recent time period reviewed. BitFlyer USA indicated that its own activity accounted for approximately ten percent of the executed volume on its platform. Another, Coinbase, disclosed that almost twenty percent of executed volume on its platform was attributable to its own trading. "

"There is a reason that we dont' let the exchanges trade on their own markets against their clients. It's a long learned lesson". Care to elaborate?

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