GDAX Releases Framework for New Digital Assets

The Global Digital Asset Exchange (GDAX) released its criteria late last week, covering a range of attributes including any potential tradable asset’s status under US securities law, liquidity profiles, product governance and scalability.

The venue, which is designed for “professional” traders, is one of the leading exchanges for digital currencies, and is owned by Coinbase. Investors include the New York Stock Exchange (NYSE) and prominent venture-capital firm Andreessen Horowitz, and the exchange closed a $100 million investment round in April 2017.

In a statement, GDAX said that “significant growth” in the digital-asset ecosystem had prompted the development and release of the framework, which was formulated with input from internal and external sources, including Scalar Capital and Coinfund.

However, while the framework includes qualitative statements about liquidity profiles, whether an asset is backed by a fiat instrument and other concerns around what type of blockchain it uses, it lacks any quantitative measures by which GDAX will admit the instruments. For instance, market capitalization is mentioned as one criterion, where GDAX will measure it against the most popular digital currencies, but an acceptable ratio is not listed.

GDAX spokespeople did not respond to requests for comment on this issue from WatersTechnology in time for publication, nor did they respond to questions about whether this move by GDAX had been prompted by recent regulatory scrutiny of digital assets and cryptocurrencies.

The exchange itself came under scrutiny in June, when it experienced a flash crash in the ether–US dollar currency pair, driving the value of ether down to $0.10 in a matter of milliseconds and wiping out the portfolios of customers who traded on margin, before recovering just as quickly.

In that instance, GDAX said that it would refund customers, and would examine safeguards such as revised margin policies, or circuit breakers that could halt trading in times of extreme price swings.

Regulators have also tightened their focus on whether crypto investments—particularly those made via initial coin offerings—count as investments under securities law, and therefore fall under their purview.

Market participants, too, are seeking to add a layer of legitimacy to cryptocurrency trading, which has long been seen as a “Wild West” in financial markets, where participants can make huge gains but often at the expense of enormous risk, owing to an immature market structure.

Last week, the Chicago Mercantile Exchange (CME) announced that it would introduce cash-settled futures on bitcoin by the end of 2017, while LedgerX received regulatory approval to begin trading and clearing options on bitcoin in July.

Both moves were widely seen as introducing a key aspect of market structure—a hedging market and derivatives layer—that were missing from a market that had been largely traded peer-to-peer on a spot basis before. However, some still warn that there are other elements yet to be put in place before institutional money flocks to bitcoin, and others are surprised at the speed at which the markets are developing

One executive at a bitcoin-focused asset manager told WatersTechnology that they “did not expect this to happen so quickly,” when asked about the CME’s product launch.