I don't agree, if they need to hedge spot for their index there is huge value in being the one that operates the venue. The activity is trading crypto and there is always an incentive to do this at the best price (doesn't matter whether you are providing liquidity, or hedging some exposure). Right now we can only assume they do this "the fair way" (eg. how we can trade on their platform - with the same information we have). But how do we know they are? For all we know the guy that needs to execute these trades is sitting next to another guy that is monitoring the exchange and everyone's stops / margin liquidation prices.
They have to make their profits somehow. And, the ultimate check on their profits is competitive offerings. Thus a slight profit here may just help them charge less elsewhere, in the fees I explicitly pay. (I can see how a professional or high-frequency trader would feel differently, though.)
But, a further clarification from Coinbase has confirmed my skepticism of the nefarious interpretation of the "20% volume" statistic. The 20% figure s driven by trades at the direction of of customers, not for Coinbase itself. See:
https://blog.coinbase.com/correcting-the-record-coinbase-doe...
As far as I know, Coinbase has no investment vehicle which uses discretion to speculatively move into and out of individual cryptocurrencies.
Instead, they sometimes collect their commissions in cryptocurrencies, and they offer an index fund. To the extent they'd need to convert those commissions to fiat to cover other expenses, or acquire/discard coins for the index fund, those activities necessarily require buying/selling at market, but offer limited opportunity for manipulation.
If the "20% volume" is from these necessary activities, it's not so concerning, and (for example) forcing them to use someone else's market for these activities would be silly.