Coinbase recently introduced its wrapped Bitcoin, cbBTC, on the Base Network, which has sparked controversy within the crypto community. Notably, Tron founder Justin Sun expressed several concerns regarding the new product and made his opinions public. Some of his followers also share similar sentiments about Coinbase’s cbBTC.
One significant issue raised by Justin Sun is the lack of Proof-of-Reserve (PoR) for cbBTC, emphasizing the absence of audits and the possibility of freezing balances without warning. He criticized the system as a “trust me” model that lacks accountability and transparency. Sun warned about the potential risk of U.S. government subpoenas seizing all the BTC held under this system, likening it to a centralized form of Bitcoin.
In a bid to foster economic freedom for Bitcoin holders, American exchange Coinbase launched cbBTC on the Layer-2 network, ensuring that the wrapped BTC token is fully backed by Bitcoin reserves. This development allows BTC holders to leverage their assets on various platforms such as Compound, Morpho, Moonwell, and Spark. Consequently, the value of the unrelated cbBTC token surged by over 93% to $0.000153 following its launch.
The importance of Proof-of-Reserve in the cryptocurrency industry has been emphasized in the wake of past incidents like the Terra/LUNA crash and the FTX exchange collapse. Reports like PoR are crucial for assessing a protocol’s transparency and financial stability, and leading exchanges like Binance regularly publish such reports to demonstrate their asset holdings and user balances. However, it remains to be seen if Coinbase will provide a PoR for cbBTC in the future, especially in light of Justin Sun’s concerns.