Key Points
- Coinbase is facing scrutiny over its Bitcoin reserves and transparency in its new cbBTC offering.
- Despite allegations, Coinbase founder Brian Armstrong defends the company’s practices and audit processes.
Coinbase has found itself in the spotlight on 15th September, facing criticism and allegations of a lack of transparency in its Bitcoin (BTC) reserves.
This controversy was sparked by the launch of Coinbase’s wrapped BTC, cbBTC, a BTC derivative that can be used as collateral in the DeFi space.
Allegations of ‘Paper BTC’
Certain community members have alleged that Coinbase has ‘sold paper BTC’ to BlackRock without a proper 1:1 backing.
These critics are demanding to know the exact amount of Coinbase’s BTC reserves for its cbBTC and BlackRock ETF.
In response to these allegations, Coinbase founder Brian Armstrong defended the company’s practices.
Regarding the BlackRock allegations, Armstrong pointed out that Deloitte conducts annual audits of the company and that it is not Coinbase’s place to share clients’ wallet addresses.
Defending the Company
This is not the first time Coinbase has faced these allegations.
In May, similar claims were made against Coinbase and BlackRock, but they were dismissed by ETF experts like Eric Balchunas from Bloomberg.
Balchunas noted that the supposed lack of transparency was due to the absence of ‘in-kind’ redemptions in the ETF design.
However, Armstrong’s statement regarding cbBTC has left some community members unsatisfied.
Despite Coinbase being a centralized custodian, these members believe that the company should allow people to verify their BTC backing for cbBTC.
Competing with BitGo’s WBTC
Coinbase’s cbBTC will be competing with BitGo’s WBTC, which is transferring custody operations to Justin Sun’s firm.
Some of the allegations against Coinbase may be seen as a competitive move for market share.
Yet, it remains uncertain whether Coinbase will disclose its backing for cbBTC in the future.
