Coinbase was recently in the news related to their disclosure that if the company goes bankrupt, the users’ funds could go away! This caused an uproar in the crypto community.
Paul Grewal, Chief Legal Officer of Coinbase, posted a blog post and a Twitter thread discussing Coinbase’s disclosure in a 10Q report.
About the funds of people
Paul clarified that the firm has “more than $6 billion in the bank,” is financially sound, and has “legal and operational protections for users to invest access, and withdraw their cryptocurrency.”
Grewal stated in his blog post that “Coinbase maintains internal systems, like a bank or a broker. Our fully audited ledger identifies your account, and your fiat and crypto holdings, and tracks your account activity in real-time. There’s never a situation where customer funds could be confused with corporate assets.”
About repurposing the user’s funds
While certain banks and financial institutions use user cash for commercial objectives and maintain only a percentage of their customer assets at any given moment, Coinbase holds customer assets in full and makes them available for transfer, according to Coinbase’s Chief Legal Officer.
“We do not lend or take any action with your assets unless you specifically instruct us to. Many banks and financial institutions use customer funds for commercial purposes including lending and trading, meaning that they often hold only a fraction of their customer assets at any given time. Coinbase always holds customer assets 1:1. This means that funds are available to our customers 24 hours a day, 7 days a week, 365 days of the year.”
Clarity about Retail User Agreement
In the event of custodial insolvency, he emphasized that the firm recently modified its Retail User Agreement to underline the same legal protections provided to institutional clients.
“We have always protected our customer funds both legally and physically. We also recently updated our Retail User Agreement to expressly highlight the applicability of UCC Article 8 — the same legal protection that our institutional clients also rely on to protect their assets in the event of a custodian bankruptcy. This is not a change in how we do business. We believe that digital assets in our custody have always been Article 8 financial assets, but have clarified this so that there will not be any doubt.”
Company in losses in Q1
Coinbase’s 10-Q report came after the firm announced a $430 million net loss during the year’s first quarter, compared to an $840 million profit in the fourth quarter of 2021. In the first quarter, the company’s sales were $1.17 billion, compared to the average estimate of $1.5 billion among analysts.
According to reports, Owen Lau, an equities analyst at Oppenheimer, believes Coinbase, a Nasdaq-listed bitcoin exchange, has “hidden potential” in its Coinbase Ventures unit.
Coinbase’s Ventures portfolio could be valued at up to $6.6 billion, according to the research analyst. While they aren’t yet contributing monetarily to the exchange, they are “strategically vital to the corporation.”