By Nermeen Nabil Coinbase’s chief legal officer Paul Grewal has addressed user concerns about the company’s 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 user’s 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 users’ concerns, Coinbase’s 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 Coinbase’s liability is limited in cases where users engage in complex trades or leveraged positions on external platforms.
“It’s a limitation on liability that’s pretty basic: we aren’t liable for more than the BTC we lose. This language also makes clear the custodial relationship which it x-references,” Grewal stated.
Coinbase’s wrapped Bitcoin, available in several regions excluding New York, comes amid increased controversy surrounding BitGo’s 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 Sun’s 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 Sun’s involvement in WBTC. The entity also referred to Sun’s 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, Sun’s 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 wouldn’t have control over the funds. Despite that, Sky has proposed removing WBTC as collateral from its DeFi platform SparkLend due to concerns about Sun’s influence.
According to the proposal, Sun’s 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, Coinbase’s 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, Coinbase’s 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 Solana’s rapid transaction capabilities for DeFi engagements.
The post Coinbase Reassures on cbBTC Terms amid User Concerns appeared first on Blockonomi.
Nermeen Nabil Khear