Over the past week Coinbase has released their wrapped Bitcoin alternative called cbBTC. There have been many concerns associated with cbBTC that I would like to discuss here to raise awareness and help protect the blockchain industry and keep Bitcoin decentralized.
Now In contrast to cbBTC the existing wBTC is a much safer and protected option for a wrapped Bitcoin. Below I will highlight the benefits of wBTC. I will also cover the benefits of the wBTC asset below!
Custodial Safeguards of wBTC
WBTC is managed by a network of custodians and not a single entity. These custodians provide security and insurance of wBTC.
Auditing of wBTC
Regular audits ensure that the backing of assets wBTC are always available and accessible. This reduces the risk of under-collateralization or fraudulent activities​.
Transparency of wBTC
wBTC is fully backed 1:1 by Bitcoin held in a reserve. This reserve can be publicly verified via on-chain audits and proof of reserves. Users can check the total supply of WBTC and the equivalent amount of Bitcoin held in custody in real time.
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cbBTC Proof of Reserves:
Coinbase claims cbBTC is an ERC20 token that is backed 1:1 by Bitcoin (BTC). A clear question is what assurances does the Communities have regarding the backing of cbBTC? Also what party will have access to the private keys custody of these backed assets?
Coinbase’s Regulatory Exposure
As a U.S. based company Coinbase can be subject to potential regulatory issues that could directly impact cbBTC. How can Coinbase ensure that protocols using cbBTC won’t be affected by sanctions or other regulatory challenges?
Custodial Risks of cbBTC
If cbBTC is primarily and solely custodied by Coinbase this brings a concern for a single point of failure. If there are no other custodians involved, Coinbase facing any issues can lead to the downfall of cbBTC.
