Coinbase Buys Paradex in Push to Expand Crypto Coin Offerings

(Bloomberg) -- Coinbase, one of the most popular U.S. cryptocurrency exchanges, agreed to buy a platform that it says will give non-U.S. customers the option to trade hundreds of Ethereum-based coins directly with one another.

The company is acquiring Paradex, a startup with around 10 employees in New York, Chicago and San Francisco that enables peer-to-peer trading of so-called ERC20 tokens that are based on the Ethereum blockchain. Coinbase did not disclose the terms of the transaction, which it announced in a statement Wednesday.

The move marks the first step in an expansion for San Francisco-based Coinbase beyond trading Bitcoin, Bitcoin Cash, Ether and Litecoin. It has functioned as the middleman in transactions of those coins and kept custody of the underlying digital tokens. Trading over Paradex will link customers directly with one another outside of Coinbase’s exchange. Coinbase is still working out whether and how it will implement a fee structure.

“At no point does Coinbase touch that asset. It goes straight to the other party,” company spokesman Elliott Suthers said. “It’s completely disintermediating the central exchange.”

For customers, the peer-to-peer transactions may mitigate some of the security risks associated with holding funds at centralized exchanges, which can be vulnerable to large-scale attacks by hackers or thieves. At the same time, the burden of keeping the tokens safe may shift to the individual -- something Paradex warns of on its website: “Paradex will not be responsible for any losses of any kind whatsoever.”

Coinbase plans to offer the service to U.S. investors, but says it will have to make some changes for compliance purposes.

Coinbase customers have been urging the exchange to add more coins, but it has held off due to a lack of regulatory clarity around which tokens are securities. It claims that none of the four it currently offers fit that bill. The Paradex deal may allow the firm to satisfy customer demand to trade ERC20 tokens while sidestepping a regulatory headache since the exchange never takes possession of the tokens.

Coinbase has said it holds more than $20 billion in digital assets.

The firm also announced Wednesday that it’s rebranding GDAX, its trading platform that was originally meant for institutional investors but became a go-to crypto marketplace for individuals. GDAX will be renamed “Coinbase Pro” at the end of June and has been redesigned with a simpler user experience.

“When we launched GDAX three years ago, we envisioned a product that would help institutions enter the crypto space,” the firm said. “Coinbase Pro is an evolution of GDAX, specifically designed for individual crypto traders.”

The company has made an effort recently to distinguish between the trading services it offers to beginner traders and those catered to more experienced investors, announcing earlier this month that it was debuting a new suite of institutional products.

©2018 Bloomberg L.P.