KEY POINTS
- Coinbase recently launched $cbBTC, which will enable BTC holders to use their assets in new ways
- TRON’s Justin Sun questioned the lack of proof of reserves and possible government interference
- Many Bitcoiners agreed that Coinbase’s new token has many loopholes
- On audits, Brian Armstrong said Deloitte is auditing Coinbase
Coinbase recently launched cbBTC, a new ERC-20 token that the cryptocurrency exchange giant said is “backed 1:1 by Bitcoin held by Coinbase.” The token’s entry into the digital assets space was welcomed by many crypto users, but Bitcoiners, a group of BTC holders known to be very passionate about the digital currency’s development, are raising concerns about the new asset’s tokenomics.
Coinbase Launches cbBTC
Coinbase unveiled the Coinbase Wrapped BTC (cbBTC) last week, saying it will empower millions of Bitcoin holders to securely access decentralized finance (DeFi) apps on the Base and Ethereum networks.
cbBTC is onchain.
cbBTC is an ERC20 token that is backed 1:1 by Bitcoin (BTC) held by Coinbase.
This means millions of BTC holders can now securely access DeFi apps on @base and Ethereum ecosystems—with more chains coming soon.
Here’s what you need to know ↓ pic.twitter.com/nF8mF3JGms
— Coinbase 🛡️ (@coinbase) September 12, 2024
According to the exchange, cbBTC will eliminate a friction point “by allowing customers to use Bitcoin they already hold in new ways onchain.” The new token hit a $100 million market cap on its first day, as per data posted by blockchain researcher Tom Wan.
Questions Emerge, Evoked by Justin Sun
Within hours after the cbBTC’s launch, questions have emerged regarding the new wrapped Bitcoin token, including from Justin Sun, the founder of the TRON blockchain.
He said Coinbase’s wrapped BTC token “lacks proof of reserve, no audits, and can freeze anyone’s balance anytime.” Coinbase is a centralized exchange, which means it acts as an intermediary between buyers and sellers.
#cbbtc lacks Proof of Reserve, no audits, and can freeze anyone’s balance anytime. Essentially, it’s just ‘trust me.’ Any U.S. government subpoena could seize all your BTC. There’s no better representation of central bank Bitcoin than this. It’s a dark day for BTC.
— H.E. Justin Sun🌞(hiring) (@justinsuntron) September 12, 2024
Sun also said the system around cbBTC allows “any U.S. government subpoena” to seize all of a user’s Bitcoin holdings. “There’s no better representation of central bank Bitcoin than this,” he said.
While many users agreed with Sun regarding the purported issues around cbBTC, prominent non-fungible token (NFT) influencer Artchick.eth revealed that “Sun is a soon to be owner of WBTC (Wrapped Bitcoin) which is cbBTC’s main competitor.” WBTC was jointly launched by Kyber, Ren, and Bitgo in 2019. Sun has yet to respond to Artchick.eth’s claim.
Bitcoiners Join cbBTC Call Out
Throughout the weekend, many Bitcoiners have joined the callout regarding Coinbase’s new token.
Longtime BTC educator Duo Nine said the cbBTC token not having proof of backing on the Bitcoin chain “is all the proof you need to stay away from Coinbase.” Duo Nine also noted that while Sun “may not be the most trustworthy character in crypto,” his concerns regarding cbBTC’s fundamentals “make a valid point.”
The fact that their cbBTC token has no proven backing on BTC chain is all the proof you need to stay away from Coinbase.
You can’t take them seriously until that changes.
— Duo Nine ⚡ YCC (@DU09BTC) September 15, 2024
Heidi Chakos of crypto education YouTube channel Crypto Tips said cbBTC is “not real Bitcoin.” She reiterated that the only real BTC a holder can have should be on the BTC network.
🚨 Red Flag for Coinbase Users: What You Need to Know About cbBTC! 🚨
Heads up, it’s not real Bitcoin—it’s a wrapped version, and it comes with centralization risks that could catch you off guard. The only real BTC is on the Bitcoin network! Not your keys, not your crypto! pic.twitter.com/BN5sGAylfF
— Crypto Tips (@cryptotipsreal) September 13, 2024
Sean Clarke, another longtime Bitcoiner, warned that the cbBTC was designed “to trick you out of holding Bitcoin in self custody.” He also called on the exchange to at least post their proof of reserves.
Coinbase have launched cbBTC this is a setup to take your bitcoin and give you nothing, designed to incentivise yield farming, leverage and degeneracy.
To trick you out of holding #bitcoin in self custody.@coinbase not surprised but still disappointed. Also post proof of… pic.twitter.com/m6R8hKDrDj
— Sean Clarke (@seanclarke911) September 12, 2024
Coinbase CEO Responds
Brian Armstrong has since addressed concerns regarding audits. He noted that Deloitte audits Coinbase. On the other hand, he argued that he believes the exchange’s institutional clients wouldn’t want “people dusting all their addresses, and it’s not our place to share for them.”
Baldilocks here.
Not sure what this is all about TBH. All ETF mints and burns we process are ultimately settled onchain. Institutional clients have trade financing and OTC options before trades are settled onchain. This is the norm for all our institutional clients. All funds…
— Brian Armstrong (@brian_armstrong) September 14, 2024
He also clarified that Coinbase has never claimed otherwise than the fact that with cbBTC, users are “trusting a centralized custodian to store the underlying BTC.”
Veteran Bitcoiner Tyler Durden posted screenshots of reports regarding Deloitte, which Armstrong said had been auditing Coinbase. One of the screenshots featured a report from The Guardian wherein the consultancy firm admitted misuse of government information.
Coinbase has yet to officially address calls for the exchange to provide proof of its Bitcoin reserves.
