Coinbase’s Chief Legal Officer Clears Up Concerns About cbBTC’s User Agreement

Paul Grewal has addressed recent concerns about the terms of service of Coinbase’s recently launched cbBTC, a wrapped Bitcoin product.

Concerns arose after claims suggested the exchange would not fully reimburse users for Bitcoin lost due to malicious activity or unforeseen events.

Limited liability concerns

The issue was first raised by user X who highlighted what they believed to be a problematic part of the cbBTC user agreement. The individual argued that this provision would limit Coinbase’s legal liability, claiming that they would only reimburse customers with a “proportionate portion of remaining BTC” instead of the full amount in cases where Bitcoin is lost.

Reporter Alex O’Donnell added context, explaining that the crypto exchange would owe cbBTC holders for lost Bitcoin for BTC, but would not cover any additional losses. For example, if a user holding it as loan collateral experienced a liquidation due to the loss of Bitcoin, they would be reimbursed for the lost crypto, but not any fees or losses related to the liquidation.

Paul Grewal responded, confirming that liability is limited to the loss of Bitcoin and does not extend to cover external losses from trades or leveraged positions.

“It’s a limitation of liability that’s pretty basic: we’re not responsible for more than the BTC we lose. That language also makes the custodial relationship clear,” he said.

Brian Armstrong also recently addressed the community’s growing skepticism about the product’s transparency, confirming that cbBTC is backed by Coinbase itself.

WBTC Controversy

On September 12, Coinbase launched cbBTC, a tokenized or wrapped version of Bitcoin. The launch coincided with the controversy surrounding BitGo’s Wrapped Bitcoin (WBTC), which has gained attention due to the involvement of Tron founder Justin Sun.

Within a week of its launch, cbBTC became the third largest Bitcoin product wrapped in a segment dominated by BitGo’s WBTC. A recent report by CryptoQuant showed that there are more than 153,000 WBTC tokens in circulation, compared to 1,670 for cbBTC.

However, despite its superiority, the wrapped heavyweight BTC has not been without debate. On August 9, BitGo announced a multi-jurisdictional agreement to split custody of the underlying Bitcoin for WBTC between Hong Kong, Singapore and the United States.

It caused concern in the crypto community, especially regarding Sun’s potential influence over the project. In response, CEO Mike Belsche was forced to assure users that Tron’s founder would not have the ability to control or move funds in the new dispensation.

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