Author: Nancy, PANews

After experiencing a trust crisis, WBTC has seen the emergence of many competitors in the market, with the most attention being paid to cbBTC, which is backed by Coinbase, the largest cryptocurrency exchange in the United States. In less than two weeks after its launch, cbBTC, as an important substitute in the market, has risen to become the third largest wrapped Bitcoin. However, at the same time, its asset transparency issues have raised concerns in the market.

Rising to become the third largest wrapped Bitcoin, with a market share of only 1.2%

On September 12, Coinbase officially launched its wrapped Bitcoin version, Coinbase Wrapped BTC (cbBTC), with a 1:1 endorsement of BTC, which will run on the Ethereum mainnet and Base.

As the largest cryptocurrency exchange in the United States, known for its compliance advantages, Coinbase has led cbBTC to quickly capture market share, especially as WBTC, which originally held a stable market share, is being "abandoned" by more whales and old DeFi projects such as SKY (MakerDAO) and AAVE.

According to Dune data, as of September 24, the circulating supply of cbBTC reached 2944, with 53.9% on the Ethereum chain and 46.1% on the Base chain. The current market value of cbBTC exceeds $180 million, with a trading volume of nearly $1.31 billion in the past 24 hours, mainly concentrated in Aerodrome (93.3%) and Uniswap (4.4%).

At the same time, the latest data from IntoTheBlock shows that the number of user addresses for cbBTC has exceeded 3,500, with these addresses settling an average value of $472 million worth of Bitcoin on the Base chain every day.

In terms of market share, according to Dune data, as of September 23, cbBTC and BBTC were tied for third place with a 1.2% share, still far behind WBTC (68.5%) and BTCB (26.6%). However, according to Hassan Ahmed, the head of Coinbase in Southeast Asia, who recently revealed at the Solana Breakpoint event, cbBTC plans to introduce Solana, which may further drive its market expansion.

Official response to consecutive doubts about service terms and transparency, plans to implement PoR

Trust is the anchor of value for wrapped assets. Shortly after its launch, cbBTC faced concerns about the lack of transparency in asset reserves and service terms.

In mid-September, shortly after its launch, cbBTC was questioned about the lack of transparency in its Bitcoin reserves. At that time, crypto analyst Tyler Durden hinted in a post that Coinbase allowed BlackRock to borrow Bitcoin without providing collateral, suggesting that these two companies might profit by controlling the price of Bitcoin. In response to claims that cbBTC was sold to BlackRock without maintaining a 1:1 backing, Coinbase CEO Brian Armstrong denied this, stating that BlackRock's Bitcoin ETF's Bitcoin minting and burning are transparent and conducted on-chain. Due to privacy considerations, Coinbase cannot share the wallet addresses of its institutional clients. However, he also admitted that cbBTC is backed by a centralized custodian, in this case, Coinbase itself. Additionally, BlackRock runs blockchain nodes to verify the Bitcoin holdings of IBIT, ensuring the security of client assets. If institutional clients request it, BlackRock will display this data, but will not make it public to the world.

Shortly thereafter, cbBTC faced controversy over its service terms, with some community users stating that in the user terms of cbBTC, if Bitcoin is lost due to malicious activity or unforeseen events, Coinbase will not fully compensate the client, but will distribute Bitcoin to clients in proportion to the remaining Bitcoin.

In response, Coinbase's Chief Legal Officer Paul Grewal stated that if the exchange loses the underlying Bitcoin, Coinbase will fully compensate the client. This policy limits the exchange's liability for external losses resulting from complex trading by clients and leveraged positions. For example, if a trader uses cbBTC as collateral on a lending platform and loses the underlying Bitcoin due to malicious activity, Coinbase will fully compensate for the lost Bitcoin, but will not compensate for any fees or monetary losses resulting from the loan liquidation itself.

However, Coinbase's explanation seems to have not dispelled external doubts, including TRON founder Justin Sun "stirring up trouble," stating that "cbBTC is not BTC." In terms of user asset protection, there are differences between WBTC and cbBTC. The former issuer, BitGo, provides up to $250 million in on-chain insurance funds, while cbBTC does not provide any financial guarantees, and its asset reserves are also not transparent.

0xngmi, the founder of DeFiLlama, recently pointed out on social media, "To be honest, almost every cross-chain bridge (including WBTC) will provide proof of reserves (PoR) so that users can check if the issued tokens have sufficient backing. However, Coinbase has not done this, and cbBTC is far below the standard in terms of transparency. This is also why it has not been listed on DeFiLlama, because its TVL cannot be verified. If we don't list other cross-chain bridge projects that cannot verify TVL, we won't make an exception for Coinbase. We treat all projects equally."

Hildobby, a data analyst at Dragonfly, also wrote, "I am disappointed to see Coinbase issuing cbBTC without any proof of reserves (similar to cbETH two years ago). When cbETH was launched, I complained, but was told that I could only use their centralized terminal to get the conversion rate. In last year's investigation, Coinbase held 12% of staked ETH (this was never formally confirmed in any way). In addition, Coinbase's quarterly reports have disclosed the amount of staked ETH, but in the recent report, they did not disclose it.

In addition, some community members pointed out that the service agreement for cbBTC is signed with Coinbase Inc., which is not a regulated financial institution and was charged by the SEC last year as an unregistered securities exchange, broker-dealer, and clearing agency, and is independent of the regulated cryptocurrency custody business Coinbase Trust Company, supervised by the New York Department of Financial Services (NYDFS).

In response, Lukas Staniszewski, the product manager of cbBTC, stated, "We understand the importance of proof of reserves. For cbBTC, we have been planning to implement proof of reserves from the early stages, and the team is working hard to advance this work. The reason we did not publicly disclose this earlier is because we wanted to complete the construction first."

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