Coinbase’s Legal Officer Addresses cbBTC User Agreement Issues

Paul Grewal has responded to recent worries surrounding the terms of service for Coinbase’s newly introduced cbBTC, a wrapped Bitcoin offering.

These concerns emerged following assertions that the exchange might not fully compensate users for Bitcoin lost due to malicious incidents or unexpected occurrences.

Limited Liability Issues

The matter was initially brought up by an X user who pointed out what they considered to be a concerning clause in the cbBTC user agreement. This user contended that this clause would restrict Coinbase’s legal responsibility, alleging that reimbursement would only cover a “proportional share of whatever BTC remains” instead of the full lost amount in instances where Bitcoin was compromised.

clarifying that the crypto exchange would be liable to cbBTC holders for lost Bitcoin on a per-BTC basis, but would not cover extra losses. For instance, if a user utilized it as collateral for a loan and faced liquidation due to lost Bitcoin, they would receive reimbursement for the lost crypto but not for any associated fees or losses from the liquidation.

In his response, Paul Grewal acknowledged that the liability is confined to the Bitcoin lost and does not extend to covering external losses from trading or leveraged positions.

“It’s a limitation on liability that’s quite straightforward: we aren’t responsible for more than the BTC we lose. This language further clarifies the custodial relationship,” he stated.

Brian Armstrong also recently tackled growing community skepticism regarding the product’s transparency, asserting that cbBTC is fully backed by Coinbase.

WBTC Controversy

On September 12, Coinbase introduced cbBTC, a tokenized version of Bitcoin. This launch coincided with discussions surrounding BitGo’s Wrapped Bitcoin (WBTC), which has attracted attention due to Tron founder Justin Sun’s involvement.

In just one week post-launch, cbBTC emerged as the third-largest wrapped Bitcoin product in a market largely dominated by BitGo’s WBTC. A recent report from CryptoQuant revealed that over 153,000 WBTC tokens are in circulation, compared to cbBTC’s 1,670.

Despite its success, the wrapped BTC giant has not been free from scrutiny. On August 9, BitGo announced a multi-jurisdictional arrangement to share custody of the underlying Bitcoin for WBTC across Hong Kong, Singapore, and the United States.

This development raised alarms within the crypto community, particularly concerning Sun’s possible influence over the project. In response, CEO Mike Belsche had to assure users that the Tron founder would not be able to control or relocate funds under the new setup.