CoinDesk Report:
Paul Grewal addresses concerns over the recently launched cbBTC service terms by Coinbase, which is a packaged Bitcoin product.
There were concerns raised after the exchange claimed that it would not fully compensate users for Bitcoin losses due to malicious activities or unforeseen events.
Limited liability issue
The issue was initially raised by a user named X, who highlighted what they believed to be problematic parts of the cbBTC user agreement. The individual argued that this provision would limit Coinbase’s legal liability and only reimburse customers for a “proportional share of the remaining BTC” in the event of Bitcoin loss.
Reporter Alex O’Donnell provided background, explaining that cryptocurrency exchanges owe cbBTC holders the Bitcoin value for each BTC lost, but do not compensate for any additional losses. For example, if a user who had Bitcoin as collateral for a loan experiences liquidation due to Bitcoin loss, they would receive compensation for the lost cryptocurrency but not for any associated costs or losses from the liquidation.
Paul Grewal responded, confirming that the liability is limited to Bitcoin losses and does not include external losses from trades or leverage positions. He stated, “This is a very basic liability limitation: we don’t take any responsibility for lost Bitcoin. This language also clarifies the custodial relationship.”
Brian Armstrong recently spoke out, addressing the community’s growing skepticism about the product and confirming Coinbase’s support for cbBTC.
WBTC controversy
On September 12th, Coinbase launched cbBTC, a tokenized or wrapped version of Bitcoin. This release coincided with the controversy surrounding Wrapped Bitcoin (WBTC) by BitGo, which drew attention due to the involvement of Tron founder Justin Sun.
Within a week of its launch, cbBTC became the third-largest packaged Bitcoin product in the sub-segment dominated by BitGo’s WBTC. According to a recent report by CryptoQuant, there are over 153,000 WBTC tokens in circulation compared to cbBTC’s 1,670.
However, despite its advantages, wrapped BTC heavyweight is not without controversy. On August 9th, BitGo announced a multi-jurisdictional agreement that would split the custody of WBTC’s underlying Bitcoin between Hong Kong, Singapore, and the United States.
This raised concerns in the cryptocurrency community, especially regarding Sun’s potential influence on the project. In response, CEO Mike Belsche was forced to reassure that the Tron founder would not have control or transfer funds in the new allocation.