Coinbase Global Inc. was sued over its role in the promotion and trading of a stablecoin that allegedly was “anything but.”
The digital asset trading platform and the issuer of the GYEN token were accused of misleading investors about its stability, leading to millions of dollars in losses, according to a proposed class-action complaint filed Thursday in federal court in northern California.
“Investors placed orders believing the coin’s value was, as advertised, equal to the yen, but the tokens they were purchasing were worth up to seven times more than the yen,” according to the complaint. “Just as suddenly, the GYEN’s value plunged back to the peg -- falling 80 percent in one day.”
Coinbase then froze trading of the coin, which “compounded the harm by restricting many customers’ ability to sell the asset,” the investors alleged. As a result, purchasers of GYEN “collectively lost untold millions in a matter of hours,” they claimed.
‘Stress and Outrage’
The lawsuit came a day after Coinbase shares and bonds plunged to new lows, signaling investor skepticism about the prospects of the crypto exchange in a worsening bear market. Coinbase shares were rebounding Friday, up 17% to $68.48 at 10:28 a.m. in New York, as the crypto market calmed somewhat in morning trading.
Unlike with Bitcoin, stablecoin issuers say their tokens are backed by hard assets. GYEN, which was issued by Tokyo-based GMO-Z.com Trust Co., purportedly had its value pegged to Japan’s yen.
But in November, when Coinbase started trading GYEN, “the asset immediately came untethered from the yen,” according to the lawsuit.
Due to “the omission of the fact that GYEN was not designed to hold a value pegged to the yen, and Coinbase’s restriction prohibiting investors from liquidating their GYEN as it plummeted, several hundred purchasers lost vast sums, some losing hundreds of thousands of dollars in just hours, causing them grief, anxiety, stress, and outrage,” according to the investors, who are seeking to represent a class of GYEN purchasers and asking for unspecified damages.
Coinbase and GMO-Z didn’t immediately respond to requests for comment on the suit.
QuickTake: What Are Stablecoins? Why Did TerraUSD Go So Wobbly?
Stablecoins are designed to be only as volatile as conventional currencies, whose values typically go up and down much less than those of Bitcoin, for example. The tokens -- and in particular the leader in the field, Tether -- have drawn increasing scrutiny for the risk they could pose not only to cryptocurrency users but also to the global financial system, with U.S. financial agencies calling for strict regulation. The crash of TerraUSD intensified the worries.
The case is Donovan v. Coinbase Global Inc., 22-cv-02826, U.S. District Court, Northern District of California (San Francisco).
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