Coinbase Reassures on cbBTC Terms amid User Concerns
Coinbaseâs chief legal officer Paul Grewal has addressed user concerns about the companyâs newly launched wrapped Bitcoin, also known as cbBTC, which has recently faced controversy related to its service terms.
The new token quickly became the third-largest wrapped Bitcoin post-launch.
On Sunday, a cryptocurrency community member took to X (formerly Twitter) to raise alarms over a provision in the user agreement of cbBTC, which seemed to suggest that in the event of loss due to malicious activity, Coinbase would not fully reimburse users for lost Bitcoin.
As pointed out in the userâs post, it appears that users would only receive a proportional share of the remaining Bitcoin in cases of malicious activity or unforeseen events. These terms raise questions about the security and protection of user funds.
Worries Remain
In response to usersâ concerns, Coinbaseâs Paul Grewal clarified that the exchange indeed would fully reimburse users for any direct loss of Bitcoin, even in the event of malicious activity or unforeseen events.
However, he also said that Coinbaseâs liability is limited in cases where users engage in complex trades or leveraged positions on external platforms.
âItâs a limitation on liability thatâs pretty basic: we arenât liable for more than the BTC we lose. This language also makes clear the custodial relationship which it x-references,â Grewal stated.
Coinbaseâs wrapped Bitcoin, available in several regions excluding New York, comes amid increased controversy surrounding BitGoâs wrapped Bitcoin (WBTC), the largest wrapped Bitcoin token, and its potential ties to Justin Sun, the founder of the TRON blockchain.
Bitcoin is Popular
In August, BitGo, the custodian of WBTC, announced a partnership with BitGlobal, which would see BitGlobal become the majority shareholder and WBTC custody location changes, now including Hong Kong and Singapore.
Justin Sunâs involvement in the project raised concerns due to his past actions and the potential for conflicts of interest. The community argued that Sun would gain control over the WBTC minting and custody processes, and potentially manipulate the WBTC market.
BA Labs, in a proposal to Sky (formerly known as MakerDAO), raised potential risks associated with Sunâs involvement in WBTC. The entity also referred to Sunâs prior acquisition of the TrueUSD stablecoin in 2023, which allegedly led to operational deficiencies, resignations of the management team, and interruptions in redemptions.
Not only that, Sunâs Huobi exchange, which substitutes USDT reserves for stUSDT, a project rumored to be affiliated with Sun, was also accused of asset misappropriation.
In response to the community controversy, BitGo assured that Sun wouldnât have control over the funds. Despite that, Sky has proposed removing WBTC as collateral from its DeFi platform SparkLend due to concerns about Sunâs influence.
According to the proposal, Sunâs participation in the project increases counterparty risks, as has been observed with other projects linked to him. Sky plans to offboard WBTC collateral exposure through a series of executive votes starting on September 26.
Due to the ongoing concerns surrounding WBTC, Coinbaseâs cbBTC has gained popularity and became the third-largest wrapped BTC token shortly after its launch earlier this month.
The ERC-20 token, backed 1:1 by Bitcoin that Coinbase holds, allows users to provide Bitcoin liquidity to DeFi protocols or use it as collateral. According to data from Dune Analytics, its total market cap hit $124 million less than two weeks after its debut.
As of now, Coinbase Wrapped Bitcoin has a circulating supply of 1,969 tokens, with 44.7% on Base and 55.3% on Ethereum. Following the debut on these blockchains, Coinbase plans to expand its cbBTC to Solana.
Hassan Ahmed, Coinbaseâs Country Director of Singapore, said at the Solana Breakpoint 2024 event in Singapore this week that the firm will extend the outreach of cbBTC onto the Solana blockchain.
The executive did not reveal when cbBTC will be available on Solana, but said that the plan is aimed at capitalizing on Solanaâs rapid transaction capabilities for DeFi engagements.
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