As a seasoned crypto investor with a knack for navigating through the labyrinth of digital assets, I’ve learned to always scrutinize the fine print when it comes to terms of service. The recent concerns regarding Coinbase’s cbBTC have raised some eyebrows, and as someone who has lost a few coins to unforeseen events in the past, I can empathize with those raising questions about Coinbase’s liability.
Paul Grewal, from Coinbase, has spoken up about the terms and conditions related to their latest offering, cbBTC (wrapped Bitcoin product), addressing recent apprehensions that have arisen.
Concerns were sparked following assertions that the platform might not completely compensate users for Bitcoins lost due to malicious actions or unexpected circumstances.
Limited Liability Concerns
The issue was first raised by an X user 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 clients with a “proportional share of whatever BTC is left” rather than the full amount in cases where Bitcoin was lost.
Journalist Alex O’Donnell clarified that the crypto exchange would compensate cbBTC holders proportionally for their lost Bitcoins, yet they wouldn’t cover any extra costs such as fees or losses stemming from liquidations. For instance, a user who had cbBTC as collateral for a loan and faced liquidation due to Bitcoin loss would be refunded for the missing crypto but not for related expenses or losses caused by the liquidation process.
Paul Grewal affirmed that the responsibility only applies to the Bitcoin that were lost, and it doesn’t include any additional losses incurred from transactions or leveraged investments.
In simpler terms, he stated that our responsibility is limited to the Bitcoin we may potentially lose, and this phrasing also emphasizes the fact that we are holding your Bitcoins as a custodian.
Moreover, Brian Armstrong has recently spoken up about growing doubts within the community regarding the product’s openness, clarifying that cbBTC is directly supported by Coinbase.
WBTC Controversy
On the 12th of September, Coinbase introduced cbBTC, an alternative form of Bitcoin that is tokenized or encapsulated. This introduction came at a time when there was a stir over BitGo’s Wrapped Bitcoin (WBTC), which has garnered attention due to the participation of Tron founder Justin Sun.
Within a week of its launch, cbBTC became the third-largest wrapped Bitcoin product in a segment dominated by BitGo’s WBTC. A recent CryptoQuant report showed that more than 153,000 WBTC tokens are in circulation, compared to cbBTC’s 1,670.
Despite its acknowledged advantages, the heavily-wrapped form of Bitcoin (WBTC) has not been free from controversy. On August 9th, BitGo unveiled a cross-jurisdictional partnership to share custody of the underlying Bitcoin for WBTC across Hong Kong, Singapore, and the United States.
The crypto community raised worries, specifically about Sun’s possible impact on the project. To alleviate these fears, the CEO, Mike Belsche, had to assure users that the Tron founder wouldn’t possess the power to direct or transfer funds in the upcoming update.
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2024-09-23 17:12