Coinbase Chief Legal Officer Explains cbBTC User Agreement Concerns

Paul Grewal addresses recent concerns regarding the terms of service for Coinbase's newly launched cbBTC, a packaged Bitcoin product.

The concerns were raised after it was suggested that the exchange would not fully reimburse users for Bitcoin lost due to malicious activity or unforeseen events.

Limited liability risks

The issue was originally raised by user X who highlighted what they believed to be part of the cbBTC user agreement. The individual argued that this provision would limit Coinbase's legal liability, which would only refund customers a “proportionate share of any remaining BTC” rather than the full amount in cases where their bitcoins are lost.

Journalist Alex O'Donnell added context, stating that the crypto exchange owes cbBTC holders a Bitcoin lost per BTC, but does not cover additional losses. For example, if a user with a collateral such as a loan incurs a charge due to lost bitcoin, they will be reimbursed for the lost crypto but not for any related fees or liquidated damages.

Paul Grewal responded, confirming that liability is limited to lost Bitcoin and does not extend to cover external losses from businesses or non-profits.

“The limitation on liability is very basic: we are not liable for more than the BTC we lose. This language also makes the foster relationship clear,” he said.

Brian Armstrong also recently addressed the growing community skepticism about the product's transparency, confirming that cbBTC is itself backed by Coinbase.

The WBTC controversy

On September 12, Coinbase launched cbBTC, a tokenized or encrypted version of Bitcoin. The launch coincided with the controversy surrounding BitGo's Wrapped Bitcoin (WBTC), which gained attention due to the involvement of Tron founder Justin Sun.

Within a week of its launch, cbBTC became the third largest packaged Bitcoin product in a segment dominated by BitGo's WBTC. A recent CryptoQuant report shows that there are over 153,000 WBTC tokens in circulation, compared to cbBTC's 1,670.

However, despite its superiority, the weight of the packaged BTC was not without controversy. In the year On August 9, BitGo announced a multi-jurisdictional agreement to split custody of Bitcoin's WBTC between Hong Kong, Singapore and the United States.

In particular, it raised concerns in the crypto community regarding the impact of solar on the project. In response, CEO Mike Belsche, the founder of Tron, was forced to reassure users that he does not have the ability to control or move money in the new period.