Ripple wanted to pay to get listed on Gemini and Coinbase

According to Bloomberg [1] “Ripple Has Tried to Buy Its Way Onto Major Exchanges for Cryptocurrency“ (more about Ripple here). Bloomberg argues that Ripple has “suggested paying financial incentives“ to the exchanges Coinbase (more about Coinbase here) and Gemini (more about Gemini here) in order to get listed on those. Ripple is already trading on some 400 exchanges but getting listed on Coinbase, for instance, would open Ripple to an additional group of investors. For sure, exchanges would profit from more listed coins, however, their rationale against listing is absolutely comprehensible as it is rooted in an SEC statement from March (see more about the SEC here). In the statement titled “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets“, the SEC concluded that „a platform that trades securities and operates as an “exchange,” as defined by the federal securities laws, must register as a national securities exchange or operate under an exemption from registration“. [2] As it is still not officially clear whether Ripple is considered a security and neither Coinbased nor Gemini are register according to SEC rules neither wants to risk getting into troubles with the SEC.

In addition to that, there are a few other interesting things about Ripple’s alleged readiness to buy themselves onto exchanges.

Financial incentives pushing crypto diffusion

Assuming the rumors are true, Ripple’s attempt is just one of many examples in the crypto world where financial incentives are used to propel a crypto’s diffusion.

Recently The Verge revealed that John McAfee (see John McAfee’s profile) “charges $105,000 per promotional cryptocurrency tweet“ [3]. Through Earn.com’s (more about Earn.com here) Airdrop feature [3] crypto groups can facilitate the growth of their projects by paying people for joining Telegram groups or other community-related activities. Moreover, TS reported today how “Influencer marketing has hit cryptoworld“ quoting several experts from the influencer space saying, among other things, that “There’s a growing number of influencers on platforms like Instagram and YouTube being paid anywhere from a couple hundred dollars to tens of thousands of dollars (if they’re being paid in crypto) to endorse some new coin or ICO“. All that without mentioning those requests people get to endorse coins through tweets, e-mails, and other messages. Personally, I think it is too much of a stretch to deem all such activities as unethical – as some would do. Rather, I believe that lack of transparency is what must be considered unethical. Especially in the case of Ripple – or generally speaking in the case of cryptos trying to get listed on exchanges – I believe that if a coin is listed because it has paid a fee – or contributed any other kind of less official financial incentive – the terms should be publicly accessible.

 

The mere fact that that financial incentives can push cryptos, however, is not unethical, although maybe not the best way.

Financial incentives pushing “richest” cryptos instead of best technology

The other implication about Ripple’s alleged move is the fact that “financial incentives” could theoretically help a coin diffuse. I don’t consider this is in general something bad, however, I do believe that such moves could result in not the best technology (or product) being adopted but rather the product with the most money behind it. Even if the product at hand is only the second-best at some point it might have grown an ecosystem so big that the network effects have created a point of no return after which it is „too big to fail“ and where it would require substantial effort to switch. Some argue that with all the money miners have invested in Bitcoin mining rigs (and other members of the Bitcoin ecosystem) something similar is unfolding there. Although I argue that it is still too early to make any judgement in that matter, I do believe that it is an interesting (and important) thought to keep in mind. For instance, the Dvorak keyboard – allegedly a more efficient keyboard layout than the QWERTZ/QWERTY layout we use now – hasn’t diffused – despite (allegedly) being more efficient – because of those quoted network effects. However, the “Dvorak-story“ is not without criticism.

SEC and exchanges depict the power of gatekeepers and regulators – two things blockchain wants to remove

Moreover, the dependence on exchanges and fear against SEC points at another – very ironic – aspect, namely that the crypto world still depends on a) gatekeepers and b) regulators. Maybe the two most prominent features cryptocurrencies are expected to make redundant. There are, however, a few caveats to this line of reasoning.

Firstly, no one really cares as much as the SEC might want it. Surely, especially from end 2017 and beginning 2018 the crypto market has lost momentum when authorities around the world started talking about regulations. And whereas prices haven’t reached the end 2017 highs the whole space is still much alive. In order to stay in business, companies have been quite creative. Binance (see here for more about Binance and here for their coin the Binance Coin), for instance, has „simply“ moved from country to country until they landed in Malta where they were legally accepted in contrast to their prior stations [4]. And crypto projects in general have tried to avoid legal scrutiny by doing Airdrops [5]. It seems that every time authorities make one move, the crypto world is not 100% playing by their rules.

Secondly, we are still in the pre-crypto legislation era. With each new technology the whole “socio-technical system” including legislation changes. With that in mind one must still keep the possibility open that eventually the SEC and other authorities will lose their power to the extent “crypto extremists” hope they will.

And in regards to exchanges being gatekeepers, decentralized exchanges – DEXs  (see below projects which are working on DEXs) are one solution we can look forward in that matter.

Overview of crypto projects working on decentralized exchanges (DEXs)
Overview of crypto projects working on decentralized exchanges (DEXs)

Ripple shows the importance of partnerships in the crypto world

The final implication is about marketing and similar to what I have talked about in “Verge’s impromptu crowdfunding: odd timing, potential for backfiring, example for short-term financing and two approaches towards diffusion“. In the Verge post, I argued, among other things, that Verge’s impromptu crowdfunding (Verge was raising 75 Million XVGs in five days to establish a yet to be revealed partnership) exemplified that partnerships (as one form of marketing) can play a crucial role in the crypto world. Ripple’s alleged readiness to invest such huge sums to get listed (Bloomberg reports that Ripple was willing to lend $100 Million worth of Ripple to Coinbase in order to get listed) is just another example for the importance of partnerships in this space.

Notes


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