Person holding cellphone with logo of Coinbase on screen in front of webpage. Source: Timon - stock.adobe.com

Key Takeaways:

Coinbase clarified that cbBTC, a tokenized Bitcoin, is backed 1:1 by BTC but won’t fully cover complex trade losses like leveraged positions.
Chief Legal Officer Paul Grewal reassured users that Coinbase will cover external losses, but not fees or losses from advanced trading scenarios.
cbBTC quickly became the third-largest wrapped Bitcoin token amid industry concerns over other wrapped Bitcoin solutions like WBTC.

Coinbase’s Chief Legal Officer, Paul Grewal, addressed concerns regarding the terms of Coinbase’s cbBTC, a tokenized Bitcoin backed 1:1 by BTC.

A public discussion arose when a user highlighted a clause suggesting Coinbase might not fully reimburse customers for lost Bitcoin, potentially offering only a proportional share of remaining BTC in certain situations.

I always enjoy some Sunday am contract law. You’re right @IntrinsicDeFi. It’s a limitation on liability that’s pretty basic: we aren't liable for more than the BTC we lose. This language also makes clear the custodial relationship which it x-references.
— paulgrewal.eth (@iampaulgrewal) September 22, 2024

Grewal clarified that Coinbase would cover losses from external issues, but would not reimburse fees or losses from complex trades, such as loan liquidations involving cbBTC.

He emphasized that this limitation applies only to risks users assume through leveraged positions, not the loss of underlying Bitcoin.

Coinbase launched cbBTC in several regions, becoming the third-largest wrapped Bitcoin token within a week.

This development follows concerns about BitGo’s Wrapped Bitcoin (WBTC) and Justin Sun’s involvement, prompting the Maker community to vote to remove WBTC from its platform.