Coinbase Bailout of Ethereum Traders; Was it the Right Move?

The Reimbursement!


Adam white – the vice president of Coinbase’s flagship digital asset exchange GDAX, announced that the company will reimburse around $1 million to bailout traders that experienced large losses while a flash crash of Ethereum on the GDAX tradin platform. – on June 24.

“We will establish a process to credit customer accounts which experienced a margin call or stop loss order executed on the GDAX ETH-USD order book as a direct result of the rapid price movement at 12.30pm PT on June 21, 2017. This process will allow affected customers to restore the value of their ETH-USD account to the equivalent value of their ETH-USD account at the moment prior to the rapid price movement,”

The very thoughtful attempt of Coinbase and its exchange GDAX for attempting to secure the trust of their investors, traders or users by taking full responsibility of an abrupt and unexpected flash crash has been very much appreciated by experts, analysts as for example Litecoin creator and former Coinbase director of engineering and Charlie Lee.

  • The decision of Coinbase’s reimbursement happened as part of a long-running ambition of GDAX to become a global leader in the Blockchain Asset exchange market.

On the other side, another part of the community together with WhalePanda, known as bitcoin trader and analyst has put their critics upfront for the bailout of Ethereum investors as it may se a bad precedent for both the company and the market moving forward.

In an official company update entitled “ETH-USD Trading Update #2,” White offered an analytical evaluation of the flash crash and reaffirmed that all of the trades during the week of the flash crash were executed properly.

“We are confident that all trades this week were executed properly, however, some customers did not receive the quality of service we strive to provide and we want to do better,” wrote White.

The flash crash was a direct result of a multi-million dollar sale of Ethereum’s native token Ether which ultimately led the price of Ether to plunge within minutes. Some orders revealed that Ether was traded at $0.1.

Despite the losses of its customers and traders, GDAX shouldn’t have been blamed as internal investigations revealed its trading platform executed all orders accurately and the Coinbase team shouldn’t have taken responsibility to reimburse users.

Tuur Demeester revealed that around $1 million will be reimbursed with company funds and expressed his concern over the negative precedent the reimbursement has established for the company and the market.

Ari Paul, the portfolio manager for the University of Chicago’s $7.5 billion endowment, added:

“Coinbase’s decision to refund customers will lead to substantially more money sitting in exchange. Increases risk of Gox type problem. Coinbase as a business has a right to maximize for themselves, but bad for ecosystem by reducing perceived exchange risk. With that said, hard not to respect the decision (especially its speed) as a commitment by leadership to be in it for long haul.”

  • Researchers and developers including E8 Inc CEO and bitcoin developer Andrew DeSantis agreed with the analysis of Paul.