Coinbase has come under scrutiny regarding the transparency of its cbBTC, a newly introduced wrapped Bitcoin product on the network. BlackRock’s role in Coinbase’s cbBTC project has been cited as one of the elements that could help regain the confidence.
BlackRock Involvement Boosts Trust in cbBTC Amid Skepticism
As noted by Bloomberg senior ETF analyst Eric Balchunas, BlackRock’s involvement means that Coinbase will manage Bitcoin assets properly.
He stated that the mismanagement of the situation might result in the violation of the Securities Act of 1933. This would pose a threat to the exchange.
However, the skepticism persists in the community. Especially among those who do not fully trust institutions and governments in relation to the cryptocurrency.
Others have drawn comparisons with earlier allegations levelled against gold ETFs such as GLD that was accused of not holding physical gold. According to Balchunas, such fears stem from the inherent suspicion of the financial sector and not from actual failures of management.
Coinbase Defends cbBTC Transparency and Addresses
Coinbase CEO Brian Armstrong, however, stated a response to the criticism from Tron founder Justin Sun on the lack of proof of reserve for cbBTC. Armstrong also pointed out that cbBTC is a centralized custodian product and all transactions are settled on-chain.
He explained that institutional clients have an opportunity to use trade finance and over-the-counter options before trades are made on-chain. Armstrong also noted that as Coinbase is a publicly traded company, it is audited annually by Deloitte. And that it adds to the transparency.
He stated that the money is kept in Coinbase’s Prime vault. Additionally, the trades are resolved in one business day. Nevertheless, some of the users still express their concerns, with the concerns for government interference and lack of PoR.
Some of Sun’s followers agreed with the criticisms. They echoed the concern in regards to users’ balances being frozen at the company’s discretion. Some people argue that cbBTC is a centralised product and thus it may fall prey to government subpoenas or seizures.
However, Armstrong stated that such worries are unfounded. The practices used by Coinbase are normal in the industry, and the firm puts its clients first.
Debate on Proof-of-Reserve Intensifies as Concerns Persist
The discourse on PoR has been reignited in 2022, particularly after the failures of Terra/LUNA and FTX among others. The crypto community has now started to consider PoR reports as crucial to regain trust and ensure proper financial management.
While some of the large exchanges such as Binance provide PoR reports on a regular basis, Coinbase has not offered similar statements regarding cbBTC.
The criticism from Justin Sun has again brought into focus whether centralized exchanges should provide more transparent PoR mechanisms. Sun stated that without PoR, users are left with a “trust me” system and that is dangerous for users.
His remarks have led people to call for Coinbase to implement PoR reporting again to restore customers’ trust and follow the current industry norms. In response, Coinbase has remained adamant that the current audit and security measures are adequate.
Armstrong restated that the company will continue to adhere to the best practices for institutional investors. He stated that the involvement of reputable firms like Deloitte also increases the credibility of Coinbase’s claims of transparency.
