Coinbase enters the market to package Bitcoin, with its market value rising to third place but facing transparency controversies

Author: Nancy, PANews

After experiencing a trust crisis, WBTC has seen a surge of competitors in the market, among which cbBTC, backed by the largest cryptocurrency exchange in the U.S., Coinbase, has garnered significant attention. In less than two weeks since its launch, cbBTC has risen to become the third-largest wrapped Bitcoin, but it is simultaneously facing market concerns over asset transparency.

Risen to the Third Largest Wrapped Bitcoin, Market Share Only 1.2%

On September 12, Coinbase officially launched its wrapped Bitcoin version, Coinbase Wrapped BTC (cbBTC), after several days of anticipation. It is backed by a 1:1 ratio of BTC and will operate on the Ethereum mainnet and Base.

As the largest cryptocurrency exchange in the U.S., Coinbase, known for its compliance advantages, is rapidly capturing market share with cbBTC, especially as the previously dominant WBTC is being "abandoned" by more whales and established DeFi projects like SKY (MakerDAO) and AAVE.

According to Dune data, as of September 24, the circulating supply of cbBTC reached 2,944 coins, with 53.9% on the Ethereum chain and 46.1% on the Base chain. The current market capitalization of cbBTC exceeds $180 million, with a trading volume of nearly $1.31 billion in the past 24 hours, primarily concentrated on Aerodrome (93.3%) and Uniswap (4.4%).

At the same time, the latest data from IntoTheBlock reveals that the number of user addresses for cbBTC has surpassed 3,500, with these addresses averaging a settlement value of $472 million in Bitcoin daily on the Base chain.

In terms of market share, Dune data shows that as of September 23, cbBTC holds a 1.2% share, ranking it third alongside BBTC, while still far behind WBTC (68.5%) and BTCB (26.6%). However, according to Hassan Ahmed, Coinbase's Southeast Asia head, cbBTC plans to introduce Solana, which may further drive its market expansion.

Facing Continuous Doubts Over Terms of Service and Transparency, Official Response Indicates Plans for PoR Implementation

Trust is the anchor of value for wrapped assets. Shortly after its launch, cbBTC faced concerns regarding asset reserves and terms of service.

In mid-September, just days after its launch, cbBTC was questioned over the lack of transparency in its Bitcoin reserves. Crypto analyst Tyler Durden suggested that Coinbase allowed BlackRock to borrow Bitcoin without providing collateral, claiming that the two companies might profit by controlling Bitcoin price movements. In response to claims that cbBTC was sold to BlackRock without maintaining a 1:1 backing, Coinbase CEO Brian Armstrong denied this, stating that BlackRock's Bitcoin ETF minting and burning processes are transparent and conducted on-chain. For privacy reasons, Coinbase cannot share its institutional clients' wallet addresses. However, he acknowledged that cbBTC is supported by a centralized custodian, which in this case is Coinbase itself. Additionally, BlackRock operates its own blockchain nodes to verify its Bitcoin holdings, ensuring the safety of client assets. If institutional clients request it, BlackRock will show this data, but it will not be made public to the world.

Soon after, cbBTC faced disputes over its terms of service, with community users pointing out that the user agreement states that if Bitcoin is lost due to malicious activities or unforeseen events, Coinbase will not fully compensate customers but will allocate compensation based on the remaining Bitcoin.

In response, Coinbase's Chief Legal Officer Paul Grewal stated that if the exchange loses the underlying Bitcoin, Coinbase will fully compensate customers. This policy limits the exchange's liability for external losses arising from complex trades and leveraged positions that customers may enter. For example, if a trader uses cbBTC as collateral on a lending platform and loses the underlying Bitcoin due to malicious activities leading to liquidation, Coinbase will fully compensate the lost Bitcoin but will not cover any costs or monetary losses incurred from the loan liquidation itself.

However, Coinbase's explanation seems to have failed to quell external doubts, including comments from TRON founder Justin Sun, who "fanned the flames" by stating, "cbBTC is not BTC." In terms of user asset protection, WBTC and cbBTC differ significantly; the former's issuer, BitGo, provides an on-chain insurance fund of up to $250 million, while cbBTC offers no such financial guarantee, and its asset reserves remain opaque.

DeFiLlama founder 0xngmi recently pointed out on social media, "To be honest, almost every cross-chain bridge (including WBTC) provides proof of reserves (PoR) so that users can check if the issued tokens have sufficient backing. However, Coinbase has not done this, and cbBTC is far below the standard in terms of transparency. This is also why it has not been listed on DeFiLlama, as its TVL cannot be verified. If we do not list other cross-chain bridge projects that cannot verify their TVL, we will not make an exception for Coinbase. We treat all projects equally."

Dragonfly data analyst Hildobby also expressed disappointment at seeing Coinbase issue cbBTC without any proof of reserves (very similar to cbETH two years ago). When cbETH was launched, I raised complaints but was told that I could only use their centralized terminal to obtain the conversion rate. Additionally, in last year's survey, Coinbase accounted for 12% of staked ETH (which has never been officially confirmed in any way). Furthermore, Coinbase's quarterly reports previously disclosed the amount of staked ETH, but they did not do so in their recent report.

Additionally, some community members pointed out that the service agreement for cbBTC is signed with Coinbase Inc., which is not a regulated financial institution and was charged by the SEC last year for being an unregistered securities exchange, broker-dealer, and clearing agency, independent from the crypto custody business Coinbase Trust Company, which is regulated by the New York Department of Financial Services (NYDFS).

In response, cbBTC product lead Lukas Staniszewski stated, "We understand the importance of proof of reserves. For cbBTC, we have planned to implement proof of reserves from the beginning, and the team is working hard to advance this initiative. The reason we did not publicly state this earlier is that we wanted to complete the construction first."