Coinbase Chief Executive Officer Refutes Claims of Selling ‘Synthetic Bitcoin’ to BlackRock
On the 15th of September, Coinbase found itself in the spotlight as allegations of a lack of transparency surrounding its Bitcoin [BTC] reserves emerged.
The controversy stemmed from the introduction of cbBTC, a wrapped BTC derivative by the world’s largest crypto custody firm, leading to increased community concerns about the backing of this product as collateral in decentralized finance (DeFi) platforms.
Accusations that Coinbase had provided ‘synthetic BTC’ to BlackRock without appropriate 1:1 reserves further fueled the uproar within the community.
Questions were raised regarding the BTC reserves allocated for cbBTC and BlackRock’s ETF.
Coinbase’s Response
CEO Brian Armstrong swiftly defended the company against these claims. Addressing the allegations involving BlackRock, Armstrong highlighted the annual audits conducted by Deloitte on Coinbase and the company’s obligation to protect the privacy of its institutional clients by not disclosing their wallet addresses.
“Deloitte conducts annual audits on us as we are a public company. Our institutional clients would not want their addresses exposed, and it is not within our rights to disclose that information.”
Similar accusations were previously made in May against Coinbase and BlackRock, but were later dismissed by ETF experts like Eric Balchunas from Bloomberg, who attributed the lack of transparency to the structure of the ETF that did not support ‘in-kind’ redemptions.
Despite this, the recent claims were also disregarded by Balchunas, who noted that Arkham diligently tracks most ETF issuers and their assets, allowing for verification.
Uncertainties Surrounding cbBTC Reserves
However, Armstrong’s clarification on cbBTC raised more questions than it answered. He mentioned,
“When it comes to cbBTC, users need to trust a centralized custodian to secure the underlying BTC – this fact has never been concealed from anyone.”
Several community members argued that even with Coinbase acting as a centralized custodian, individuals should have the opportunity to verify the backing of their BTC for cbBTC.
Transparency is a fundamental principle within the blockchain space, and Armstrong’s remarks on cbBTC were considered insufficient by some observers. A concerned market participant commented,
“Coinbase refuses to offer any evidence of the BTC reserves they claim to hold or the underlying support for their new synthetic BTC, cbBTC. Failure to ensure sufficient backing may lead them down the same path as FTX.”
Coinbase’s cbBTC is poised to rival BitGo’s WBTC, which is undergoing the transfer of custody operations to Justin Sun’s company. Some perceive these allegations as part of a competitive struggle for market dominance.
Nevertheless, whether Coinbase will reveal the backing of its cbBTC remains uncertain.