Coinbase's launch of its wrapped Bitcoin product, cbBTC, has ignited a fierce debate within the industry, with Tron (TRON) founder Justin Sun lambasting the new offering, calling it a "dark day for BTC" and warning of significant risks to decentralized finance.
Speaking with Decrypt, however, a Coinbase spokesperson stood firm on the product's security and reliability. The cbBTC token is available on Ethereum and Coinbase's Base network and can be used in various DeFi platforms.
"cbBTC lacks Proof of Reserve, no audits, and can freeze anyone's balance anytime, Sun stated on Twitter. “Essentially, it's just, ‘Trust me.’” He further argued that a single U.S. government subpoena could lead to the seizure of all associated Bitcoin, mocking cbBTC as "central bank Bitcoin."
Sun's criticism of cbBTC is rooted in recent controversies surrounding wrapped Bitcoin products, particularly involving WBTC (Wrapped Bitcoin), the largest wrapped Bitcoin token and the 15th biggest digital asset by market cap. Last month, BitGo, WBTC's custodian, announced a partnership with Hong Kong-based BiT Global to diversify custody operations and cold storage across multiple jurisdictions for the cryptocurrency.
This move sparked criticism within the crypto community due to BiT Global's connections to Sun, who has been a controversial figure in the cryptocurrency space. The involvement of Sun-affiliated entities in wrapped Bitcoin products has raised questions about centralization and control.
Amid the uncertainty, Investment firm 21shares also announced its own wrapped Bitcoin called 21BTC.
“While WBTC played an important role in DeFi adoption over the years, it has not kept up with the evolution of the tech and governance in the space,” Fireblocks' VP of technology, Arik Galansky, told Decrypt. “Recent changes have made everyone aware of the counterparty risks that WBTC holds and due to this, the industry should definitely have better alternatives in the market to choose from.”
Vijay Pravin Maharajan, CEO of bitsCrunch, said the overall approach also raises concerns.
"There are inherent vulnerabilities associated with wrapped Bitcoin assets, which rely on custodians or intermediaries to hold the underlying Bitcoin, which introduces a level of centralization and trust risk,” he said.
Maharajan added that smart contract vulnerabilities on the blockchain where cbBTC is used could expose the asset to exploits, such as bugs or hacking incidents in the code.
Coinbase, meanwhile, asserted its strengths to Decrypt.
“While we can’t speak to any other wrapped BTC asset, what we can tell you is that Coinbase will not be giving up custodial key control [and] Coinbase will not unilaterally use or move any BTC backing cbBTC for rehypothecation (e.g. lending) or investment purposes,” the spokesperson said.
“Our industry-leading security and operational practices will prevent any malicious intents targeted towards the BTC reserves backing cbBTC. Coinbase follows jurisdictional requirements and reporting to ensure cbBTC always remains trusted with regulators,” the spokesperson added.
Hours after launching cbBTC, Coinbase issued a warning about nefarious actors purporting to be cbBTC.