Coinbase’s chief legal officer, Paul Grewal, has stepped in to clear the air surrounding concerns over the terms of service for the exchange’s newly launched cbBTC, a wrapped version of Bitcoin. Responding to recent fear, uncertainty, and doubt (FUD), Grewal confirmed that Coinbase would fully reimburse users for any losses related to the underlying Bitcoin (BTC) tied to cbBTC in the event of an exchange mishap.
cbBTC Terms Spark Debate
The clarification came after an individual raised alarm over a clause in the cbBTC user agreement, suggesting that customers might only receive a “proportional share” of remaining Bitcoin in cases of loss due to malicious activity or unforeseen events. The concern stirred widespread conversation about Coinbase’s liability in protecting client assets.
Addressing the controversy, Grewal reassured the community in a statement to Cointelegraph’s Alex O’Donell that the exchange is committed to covering Bitcoin losses stemming directly from malicious activity. He explained, however, that this reimbursement does not extend to losses incurred through complex trades, leveraged positions, or collateralized loans using cbBTC. In such cases, while Coinbase would compensate for lost Bitcoin, clients would not be reimbursed for loan fees or liquidation losses.
Coinbase’s Entry into the Wrapped Bitcoin Market
Launched on September 12, cbBTC is available to residents in the U.K., Australia, Singapore, and all U.S. states except New York. This move positions Coinbase as a major player in the growing market for tokenized Bitcoin, with cbBTC quickly becoming the third-largest wrapped BTC token within just a week.
However, the rollout came at a time when the space is grappling with concerns over other tokenized Bitcoin products, particularly BitGo’s Wrapped Bitcoin (WBTC). BitGo’s August announcement that it would divide custody of underlying Bitcoin between Hong Kong, Singapore, and the U.S. triggered worry, especially given Tron Founder Justin Sun’s ties to the project.
BitGo Controversy and cbBTC’s Rise
While BitGo CEO Mike Belsche has since assured that Sun wouldn’t have control over the funds, the controversy led to further scrutiny. The MakerDAO community, now rebranded as Sky, voted to remove WBTC from its platform, signaling a loss of confidence in the product.
Also Read: Justin Sun Demands Coinbase Proof-of-Reserve As Bitcoin Surges Past $60,500
Amid these developments, Coinbase’s cbBTC has surged in popularity, offering a promising alternative to WBTC. The Coinbase product’s clear terms and robust legal assurances seem to have resonated with users looking for a more secure wrapped Bitcoin option.
With Paul Grewal’s clarification, Coinbase has aimed to calm the waters, reassuring customers that their Bitcoin is protected against external losses. While concerns remain about the broader market of wrapped assets, Coinbase’s proactive stance could help solidify its position as a trusted provider in the space. As cbBTC continues to grow, the competition between wrapped Bitcoin products will likely intensify, and Coinbase’s legal assurances may play a pivotal role in attracting and retaining users.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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