Paul Grewal, the chief legal officer at Coinbase, addressed recent concerns about the user terms associated with its newly introduced cbBTC “wrapped Bitcoin” product. He assured that clients would be fully reimbursed if Coinbase were to lose the underlying Bitcoin.

The reassurance followed an individual’s discovery of what they considered a troubling clause in the cbBTC user agreement. They noted that the agreement suggested clients might only receive a “proportional share of whatever BTC is left” if the Bitcoin was lost due to malicious activity or unforeseen circumstances, rather than receiving a full reimbursement.

In a statement, Grewal clarified that the policy is meant to limit the exchange’s liabilities for external losses stemming from complex trades or leveraged positions that clients may engage in.

For instance, customers who utilize cbBTC as collateral for loans on lending platforms and subsequently undergo liquidation due to the loss of the underlying Bitcoin from malicious activity would be fully reimbursed for the Bitcoin lost, but would not reclaim any associated fees or monetary losses from the loan liquidation itself.

Introduction of cbBTC by Coinbase Amid Debate

On September 12, Coinbase launched cbBTC, a tokenized version of Bitcoin, available to users in the United Kingdom, Australia, Singapore, and all US states except New York.

This launch occurred against a backdrop of discussion surrounding the Wrapped Bitcoin (WBTC) product associated with BitGo and the involvement of Tron CEO Justin Sun in the project.

On August 9, BitGo announced a multi-jurisdiction agreement that would divide its asset custody locations for the underlying Bitcoin among Hong Kong, Singapore, and the United States.

In response to concerns over Sun’s role in this initiative, BitGo’s CEO Mike Belshe assured the crypto community that Sun would not have the capacity to move any funds.

Since then, the Sky (formerly known as Maker) community voted to exclude WBTC from its platform in a governance decision. Meanwhile, Coinbase’s cbBTC has rapidly gained traction, becoming the third-largest wrapped BTC token rather quickly.