- Coinbase has been sued by customers who allege the crypto exchange misled them about the gyen stablecoin's stability.
- Buyers lost millions of dollars in matter of hours after the gyen lost its peg to the Japanese yen, the suit alleges.
- The crypto exchange has struggled this week after weak earnings sent its stock plunging.
- For more stories, go to www.BusinessInsider.co.za.
Coinbase is facing a lawsuit that alleges customers suffered millions of dollars in losses over the crypto exchange's role in trading and promoting the gyen stablecoin.
Kenneth Donovan and Hussien Kassfy filed the potential class-action lawsuit Thursday, accusing the largest US crypto exchange of misleading customers about the stability of the gyen.
They allege that Coinbase and the stablecoin's issuer, GMO-Z Trust, described the gyen as pegged 1:1 in value to the Japanese yen, even when they knew that peg was prone to break. This information was withheld from investors, they claimed in their filing.
Soon after Coinbase started trading the gyen in November, the ethereum-based token lost its peg. Its price jumped to several times higher than the Japanese currency, before plummeting in value.
Coinbase then froze customer accounts and disabled trading in the stablecoin, citing technical reasons and unusual market conditions, CNBC reported.
"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," the complaint said. "Just as suddenly, the gyen's value plunged back to the peg, falling 80 percent in one day."
"As the gyen's value was cratering back to the yen, Coinbase compounded the harm by restricting many customers' ability to sell the asset, then abruptly suspended all trading of the asset without explanation," it added.
Because of this, gyen buyers collectively lost "untold millions" in a matter of hours, according to the complaint, which is seeking damages.
Donovan, who was unaware that the gyen wasn't pegged to the yen, paid about $335,000 to buy 38 million tokens that lost more than 80% of their value within hours of the order being placed, the filing said. Kassfy bought 13 million tokens at a cost of about $118,000, which dropped 40% in value.
The two have asked for their suit to be given class-action status. Coinbase customers launched an online campaign to get refunds in December, following the trading freeze. The claim tops off a difficult week for Coinbase as its stock plunged drastically amidst the crypto market crash. Coinbase shares plummeted 26.40% after disappointing first-quarter earnings on Wednesday, and have tumbled more than 43% for the week.
GMO-Z Trust is named as a defendant alongside Coinbase Global and Coinbase Inc. in the lawsuit, which was filed in district court for Northern California. Coinbase and GMO-Z Trust did not immediately respond to a request for comment by Insider.