Coinbase is rolling out cbBTC, a tokenized version of Bitcoin that runs on Ethereum, including the Base network. It’s backed 1:1 by Bitcoin reserves, which will likely be held by Coinbase. This move comes after teasing the launch on August 14, especially during the BitGo controversy. With cbBTC, Coinbase is now directly competing with BitGo’s wrapped Bitcoin (WBTC), which currently holds a huge 96.6% market share on Ethereum.
Coinbase’s chief legal officer, Paul Grewal, addressed the recent FUD (fear, uncertainty, and doubt) surrounding the situation
The clarification came after someone pointed out what they thought was a concerning part of the cbBTC user agreement. They claimed that if Bitcoin was lost due to hacks or unforeseen events, Coinbase wouldn’t fully reimburse customers but would instead give them a “proportional share of whatever BTC is left.” In response to Cointelegraph’s Alex O’Donell, Coinbase’s chief legal officer explained that the policy is in place to limit the exchange’s liabilities from external losses tied to complex trades or leveraged positions.
For instance, if traders use cbBTC as collateral for loans on lending platforms and their Bitcoin is lost due to a hack, Coinbase would fully reimburse the lost Bitcoin. However, any fees or losses from the loan liquidation itself wouldn’t be covered.
What is cbBTC?
cbBTC (Coinbase Bitcoin) is a tokenized version of Bitcoin (BTC) that operates on the Ethereum blockchain as an ERC-20 token. This means that it represents Bitcoin but can be used within Ethereum’s decentralized finance (DeFi) ecosystem. Each cbBTC is backed 1:1 by actual Bitcoin reserves held by Coinbase, meaning for every cbBTC issued, there’s an equivalent amount of real Bitcoin stored in custody by Coinbase.
The idea behind cbBTC is to enable users to interact with Ethereum-based DeFi platforms (such as lending, borrowing, or trading) using Bitcoin, without having to move their actual Bitcoin out of custody. It’s similar to other tokenized Bitcoin products like Wrapped Bitcoin (WBTC), but cbBTC is Coinbase’s version.
In summary, cbBTC allows Bitcoin holders to use their BTC on Ethereum networks and participate in DeFi while maintaining the security of Bitcoin reserves held by Coinbase.
What Makes cbBTC More Unique Than Other Wrapped Bitcoin?
cbBTC (Coinbase Bitcoin) has some unique aspects compared to other Wrapped Bitcoin (like WBTC), primarily due to its association with Coinbase, a major and regulated cryptocurrency exchange. Here’s what makes cbBTC stand out:
1. Trust and Custody by Coinbase:
cbBTC is backed 1:1 by Bitcoin reserves held in centralized custody by Coinbase, which is a well-established, regulated, and trusted entity in the crypto industry. This gives it a level of legitimacy and security that could be more appealing to users compared to other custodians or issuers of wrapped Bitcoin.
2. Integration with Base and Ethereum Ecosystem:
cbBTC is designed to work within Coinbase’s own Layer 2 blockchain, Base, as well as other Ethereum ecosystems. This gives it flexibility for use in decentralized finance (DeFi) platforms, particularly those that operate on Ethereum or Base.
3. Regulation and Compliance:
Being issued by a U.S.-based, highly regulated exchange like Coinbase might provide cbBTC an edge in terms of regulatory compliance, security standards, and transparency. Coinbase is subject to more stringent regulations than other custodians of wrapped assets, making cbBTC potentially more trustworthy for users in highly regulated markets.
4. Competitive Threat to WBTC:
While Wrapped Bitcoin (WBTC) controls a dominant market share in the Ethereum ecosystem, cbBTC could provide direct competition, especially given Coinbase’s large customer base and reputation. Coinbase users may prefer to use cbBTC as it integrates more seamlessly with Coinbase services and infrastructure.
5. Direct Coinbase Support:
Since cbBTC is developed and backed by Coinbase, it benefits from Coinbase’s infrastructure, customer support, and ecosystem. Users who are already within the Coinbase environment can easily access and utilize cbBTC, possibly without additional third-party risk.
In summary, cbBTC’s uniqueness comes from its strong backing by Coinbase, regulatory compliance, and direct integration with Coinbase’s ecosystem, which can offer users more confidence and ease of use than some other tokenized Bitcoin products.
Editor: Lydicius
