Coinbase recently introduced cbBTC, a wrapped version of Bitcoin designed to integrate with decentralized finance (DeFi) applications on Ethereum and Base networks. This new product aims to expand Bitcoin’s utility beyond simple holding or trading, allowing users to participate in various DeFi activities without converting their Bitcoin to other cryptocurrencies.
cbBTC is backed 1:1 by Bitcoin held in Coinbase’s custody, enabling seamless transfers between Bitcoin and Ethereum or Base networks. Users can now engage with popular DeFi platforms like Uniswap, Aave, Compound, and Curve using their Bitcoin holdings. The launch of cbBTC marks a significant step towards creating a more interconnected financial ecosystem and potentially accelerating Bitcoin adoption across DeFi platforms.
However, the introduction of cbBTC has not been without controversy. TRON founder Justin Sun voiced concerns about the product on social media platform X. Sun criticized cbBTC for lacking proof of reserve and audits, suggesting that Coinbase could freeze and blacklist addresses transacting with cbBTC. He argued that this level of control contradicts the decentralized nature of Bitcoin and poses security risks to DeFi protocols.
Sun’s comments sparked a debate about the role of centralized entities in the cryptocurrency ecosystem. He referred to cbBTC as “central bank btc,” implying that it goes against the original vision of Bitcoin’s creator, Satoshi Nakamoto.
cbbtc=central bank btc. There is no more ridiculous combination in the world than putting central banks and Bitcoin together. I imagine this is a day Satoshi Nakamoto could never have envisioned when creating Bitcoin. https://t.co/bi7EkKznpn
— H.E. Justin Sun🌞(hiring) (@justinsuntron) September 12, 2024
In response to these criticisms and concerns about Coinbase’s custody services for 8 of the 11 US-listed spot Bitcoin ETF products, Coinbase CEO Brian Armstrong addressed the issues on X. Armstrong clarified that all ETF-related transactions are ultimately settled on-chain, typically within one business day. He emphasized that Coinbase undergoes annual audits by Deloitte and, as a public company, maintains high standards of transparency.
Regarding cbBTC specifically, Armstrong acknowledged that users are indeed trusting a centralized custodian to store the underlying Bitcoin. He stated that Coinbase has never claimed otherwise, suggesting that this model is necessary to facilitate institutional investment in Bitcoin.
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
Featured Image via Pixabay