Coinbase’s cbBTC Refund Policy Clarified: What This Means for Your Crypto Holdings

Key Takeaways

• Coinbase’s chief legal officer, Paul Grewal, has taken to X to clarify the exchange’s refund policy for its new Wrapped Bitcoin product. 
• Launched two weeks ago, cbBTC is backed 1:1 with Bitcoin held by Coinbase. 
• TRON founder Justin Sun has heavily criticized the product.

Coinbase’s Wrapped Bitcoin (cbBTC) has had its refund policy clarified by the exchange’s chief legal officer, Paul Grewal, after an individual pointed out an alleged “red flag” in its user agreement. 

Grewal has assured customers that Coinbase would fully reimburse all Bitcoin (BTC) they owned if the exchange experiences a loss. 

Coinbase Clarity on cbBTC Reimbursements

In a post on X , a concerned individual stated that Coinbase would not reimburse customers the “full value of what you had, but a proportional share of whatever BTC is left” in the case of company losses. 

Grewal promptly responded that it is “a limitation on liability that’s pretty basic: we aren’t liable for more than the BTC we lose.”

In other words, Coinbase will only pay back the BTC held in clients’ wallets at the time of loss. 

What Is cbBTC?

cbBTC is Coinbase’s version of Bitcoin. All cbBTC is backed 1:1 with Bitcoin held by Coinbase. 

“Starting today, millions of Coinbase customers can seamlessly and securely access financial apps within the Ethereum ecosystem using Bitcoin they already hold,” Coinbase said in a blog post on Sept. 12. 

cbBTC is a digital asset pegged to Bitcoin, meaning that users can use Bitcoin’s value without directly dealing with its underlying blockchain. 

When users send their BTC from Coinbase to Base or Ethereum, it will automatically be converted 1:1 to cbBTC.

This allows cbBTC to be freely traded or used within decentralized finance ecosystems.

Criticism From Justin Sun

Shortly following the launch of cbBTC, TRON founder Justin Sun took to X to criticize the product, claiming its lack of transparency could spell trouble for decentralized finance.

The Chinese entrepreneur said on X that cbBTC lacked proof of reserve (POR), had no audits, and could “freeze anyone’s balance anytime.”

“Essentially, it’s just ‘trust me.’ Any US government subpoena could seize all your BTC. There’s no better representation of central bank Bitcoin than this. It’s a dark day for BTC,” he wrote. 

PoR is a mechanism used in the industry to demonstrate that a crypto exchange or wallet provider holds sufficient assets to cover all user balances.

Many users on X supported Sun’s comments, pointing out that Binance releases regular PoR reports.

However, Coinbase CEO Brian Armstrong fought back against Sun’s criticisms.

“Not sure what this is all about TBH. All ETF mints and burns we process are ultimately settled onchain,” Armstrong wrote on X.

In terms of audits, Armstrong said that Deloitte audits the company annually.

“I doubt our institutional clients want people dusting all their addresses, and it’s not our place to share for them,” he added.