Threatening Coinbase news is here. EDX Markets, a new cryptocurrency exchange backed by a group of established Wall Street businesses like Charles Schwab and Citadel Securities, said on Tuesday that it had begun processing deals. Trading platforms like Coinbase should be cautious.
The exchange is partly in response to the collapse of FTX.com last year, a Bahamas-based platform that, like most of its crypto trading rivals, served as exchange, custodian, and broker for its users. These duties are separated in the stock market. FTX clients’ cryptocurrency worth billions of dollars was stolen, and CEO Sam Bankman-Fried is facing fraud charges, which he denies.
What distinguishes EDX’s structure — at least for crypto — is that it claims merely to serve as an exchange, much like the New York Stock Exchange does for stocks. It will not act as a broker or a custodian. Other institutions will utilize it to agree on pricing for cryptocurrency trades without EDX taking control of the assets.
Securities and Exchange Commission Chair Gary Gensler has been advocating for this separation of duties in recent months.
“Separation of these core functions helps mitigate the conflicts that can arise with the commingling of such services,” Gensler said in remarks at a conference this month. “If one of your earlier speakers said they were combining these functions or that they were surreptitiously trading against their customers without complying with our rules, no one in this room would stand for it.”
An SEC representative declined to comment on EDX.
In Coinbase news, The SEC filed a lawsuit against Coinbase (COIN) earlier this month, saying that the company operates as an unregistered securities exchange, broker, and clearing agency. Coinbase has denied that it facilitates securities trading on its platform. According to its officials, the SEC has not offered a clear method to register with the agency.
Coinbase did not react to an inquiry on the EDX debut.
A number of well-known Wall Street figures back EDX. Fidelity and Virtu Financial (VIRT) are among the firm’s investors, in addition to Charles Schwab (SCHW) and Citadel.
For the time being, the scope of EDX is limited. Instead of the hundreds of tokens traded on Coinbase and its competitor Binance, the exchange exclusively trades Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. The company intends to build a clearinghouse later this year to assist with settling deals.
Its introduction into the market indicates that the old way of doing business in the crypto market, where trading platforms profit by delivering all of those activities at once, is on its way out. Even though the SEC’s action against Coinbase might take years to resolve, established corporations are beginning to apply old standards to the token market.