Coinbase Addresses User Concerns Over cbBTC Terms of Service

TLDR

• Coinbase launched cbBTC, a tokenized Bitcoin product, amid controversy surrounding BitGo’s WBTC
• Concerns were raised about cbBTC’s terms of service regarding reimbursement in case of loss
• Coinbase’s CLO clarified that customers would be fully reimbursed for lost Bitcoin
• The policy limits Coinbase’s liability for external losses from complex trades or leveraged positions
• cbBTC has quickly become the third-largest wrapped BTC token in just one week

Coinbase, a leading cryptocurrency exchange, recently launched its new product called cbBTC, a tokenized version of Bitcoin, for users in the United Kingdom, Australia, Singapore, and most of the United States.

The launch came at a time when the cryptocurrency community was expressing concerns about BitGo’s Wrapped Bitcoin (WBTC) product and its connection to Tron founder Justin Sun.

The introduction of cbBTC was not without its own share of controversy. Some users raised alarms about a provision in the cbBTC user agreement that seemed to suggest Coinbase might not fully reimburse customers in the event of lost Bitcoin. This led to widespread discussion and speculation within the crypto community.

In response to these concerns, Coinbase’s Chief Legal Officer, Paul Grewal, stepped in to clarify the situation. Grewal confirmed that Coinbase would indeed fully reimburse clients for any underlying Bitcoin lost due to malicious activity or unforeseen events.

I always enjoy some Sunday am contract law. You’re right @IntrinsicDeFi. 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.

— paulgrewal.eth (@iampaulgrewal) September 22, 2024

He explained that the policy in question was designed to limit Coinbase’s liabilities from external losses that might arise from complex trades and leveraged positions that clients enter into using cbBTC.

To illustrate this point, Grewal provided an example. If a trader were to use cbBTC as collateral for a loan on a lending platform, and that loan was liquidated following the loss of the underlying Bitcoin due to malicious activity, Coinbase would fully reimburse the lost Bitcoin.

However, the company would not be responsible for any fees or monetary losses resulting from the loan liquidation itself.

This clarification from Coinbase came as welcome news to many in the crypto community who had expressed concern about the safety of their assets.

It also helped to distinguish cbBTC from other wrapped Bitcoin products that have faced scrutiny in recent months.

The launch of cbBTC coincided with ongoing discussions about BitGo’s WBTC product. BitGo had recently announced changes to its asset custody locations, splitting them between Hong Kong, Singapore, and the United States. This move, along with concerns about Justin Sun’s involvement in the project, led to increased scrutiny of WBTC.

Despite reassurances from BitGo CEO Mike Belsche that Sun would not have the ability to move funds, the controversy continued. In a significant development, the Sky community (formerly known as Maker) voted to remove WBTC from its platform.

Against this backdrop, Coinbase’s cbBTC has seen a rapid rise in popularity. In just one week since its launch, it has become the third-largest wrapped BTC token in the market.

This quick ascent suggests that many users are finding cbBTC to be a attractive alternative to other wrapped Bitcoin products.

The success of cbBTC comes at a time when the broader cryptocurrency market is experiencing significant volatility and regulatory scrutiny.

As more traditional financial institutions and retail investors show interest in cryptocurrencies, products like cbBTC that offer exposure to Bitcoin through a tokenized form are likely to continue gaining attention.

Coinbase’s swift response to user concerns and the clear explanation of its policies have helped to build trust in cbBTC. As the product continues to gain market share, it will be important for Coinbase to maintain this level of transparency and responsiveness to user concerns.