On Nov. 17, the price of gyen, a crypto stablecoin, briefly spiked to $0.0234. The next day, the price fell back down to about $0.0087, approximately the worth of one Japanese yen — the fiat currency the stablecoin was supposed to be pegged to. Then, on Nov. 19, Coinbase froze trading, citing a “technical glitch.”
Some Coinbase users are still up in arms six months later, saying the marketplace misled them about the coin’s stability by listing it on the exchange. A group of California investors filed a lawsuit Thursday against Coinbase and gyen issuer GMO-Z Trust, saying they cost the plaintiffs “untold millions,” and are seeking to have it certified as a class action.
“In the one year since it was first issued, gyen has been anything but stable,” the complaint reads. “Coinbase holds itself out as a centralized marketplace for cryptocurrency traders, but is essentially an unregistered broker-dealer of unregulated financial instruments.”
A listing by Coinbase is seen as a stamp of approval by many crypto traders. The exchange has been trying to become more transparent about when and how it decides to list a particular coin.
The lawsuit is the latest in a string of bad news for Coinbase, whose share price fell by roughly 30% after a disappointing earnings report earlier in the week. It’s down 80% from its peak last year amid a widespread market downturn that’s hitting crypto especially hard: The price of bitcoin is at just over 40% of its November peak. Falling asset prices have also hit Coinbase's trading activity: Monthly active users were down 2.2 million from the fourth quarter to 9.2 million.
The bad news continued Wednesday, when people took note of an SEC filing that said the firm would treat customers as “unsecured creditors” should it go bankrupt. CEO Brian Armstrong asserted that customers had nothing to fear, because the company was nowhere near bankruptcy.
One silver lining: Ark Invest, Cathie Wood’s firm, bought about $30 million of Coinbase shares Wednesday. Wood has some company, with shares jumping 23% in Friday trading, and relatively light short interest in the stock.
Stablecoins are a special area of focus for investors and regulators after the crash of the UST stablecoin and its associated luna token. There could be more legal trouble for exchanges given the heavy losses stablecoin holders are experiencing.
Correction: An earlier version of this story misstated the dollar amount of Coinbase shares Ark Invest purchased. This story was updated on May 13, 2022.