Coinbase Announces cbBTC: Does Brand Beat Trustlessness?

Coinbase’s plan to launch a wrapped Bitcoin token called cbBTC comes on the back of controversy and trust issues at BitGo — custodian of the world’s most popular wrapped Bitcoin token, wBTC.

As cryptocurrencies steadily inch towards mass adoption, we are getting glimpses of what the crypto industry could look like soon — one where decentralization and trustlessness are no longer the priority.

Instead, traditional finance terms such as “fiduciary” are becoming the norm as crypto projects backed by reputable and “trustworthy” brands, like Circle’s USDC and possibly Coinbase’s cbBTC, thrive.

Table of Contents Table of Contents

1. Key Takeaways
2. Fiduciary vs. Trustless
3. Coinbase cbBTC: Different Product, Same Playbook
4. wBTC Concerns Pave the Way for Coinbase's cbBTC
5. Coinbase to Create a "Trustworthy" Wrapped Bitcoin Token?
6. FAQs
7. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. Fiduciary vs. Trustless
3. Coinbase cbBTC: Different Product, Same Playbook
Show Full Guide
4. wBTC Concerns Pave the Way for Coinbase's cbBTC
5. Coinbase to Create a "Trustworthy" Wrapped Bitcoin Token?
6. FAQs
7. References

Fiduciary vs. Trustless

Crypto’s most popular products, other than Bitcoin (BTC) and Ethereum (ETH), are stablecoins — and there’s a problem.

The fiat-pegged tokens give holders dollar exposure, work as a hyperinflation hedge, and offer stability against crypto market volatility from anywhere in the world.

But, as they currently stand, they are neither trustless nor decentralized.

USDT, the largest stablecoin in the world with tokens worth over $116 billion circulating at the time of writing, is heavily centralized.

Its operating company, Tether, issues USDT tokens. The issuer also maintains the reserves backing the tokens.

Regarding Tether’s fiduciary duties, the company’s history casts much doubt on the mind of the idealist crypto user.

The firm was fined $42.5 million in October 2021 by the Commodity Futures Trading Commission (CFTC) for falsely claiming that it “maintained sufficient U.S. dollar reserves to back every USDT in circulation” between June 2016 to February 2019.

According to the CFTC, Tether had fiat reserves to redeem only 27.6% of USDT tokens in circulation in a 26-month sample period from 2016 through 2018.

Despite the complete absence of trustlessness and decentralization, Tether and USDT continue to grow exponentially.

Between January 2021 and August 2024, the market cap of USDT has grown over five-fold from $21 billion to $116 billion.

Brand wins, at the cost of crypto’s goals where you do not need to place trust on one party alone.

Coinbase cbBTC: Different Product, Same Playbook

In 2018, Coinbase and Circle started a joint venture called Centre Consortium to provide crypto users with a “safe” stablecoin called USDC, as an alternative to USDT, which was marred with controversy.

Coinbase and Circle’s regulatory-first and transparent approach made USDC the stablecoin of choice for institutional and corporate clients. Backed by reputed brands, USDC has slowly chipped away at USDT’s dominant position to become the second-largest stablecoin in the world, with a market cap of $34 billion.

Contrary to the crypto industry’s value proposition of trustlessness, Coinbase and Circle marketed trust as the ultimate currency for their stablecoin venture.

As things stand, Circle-issued USDC and its Euro-pegged stablecoin EURC are the only compliant stablecoins in the European market backed by an Electronic Money Institution license.

Now Coinbase aims to do the same with wrapped Bitcoin tokens with the launch of cbBTC.

cbBTC.

— Coinbase ??? (@coinbase) August 13, 2024

The crypto exchange teased its followers on X with a cryptic post saying “cbBTC.” A subsequent post followed, saying “Coming soon.” No further details were shared.

wBTC Concerns Pave the Way for Coinbase’s cbBTC

The cbBTC announcement comes after the crypto community voiced its concern about BitGo’s decision to relinquish its wBTC custodian responsibility to a new joint venture company created by BitGo, BiT Global, and Tron founder Justin Sun.

wBTC was created in 2018 by BitGo, Kyber Network, and Republic Protocol. BitGo is the only custodian of wBTC, while Kyber and Republic perform the duties of “merchant” –? parties that initiate mint and burn processes and distribute wBTC to users.

BA Lab, a member of MakerDAO’s Stability Scope Advisory Council, called for MakerDAO to lower its exposure to wBTC collateral used to mint the DAI stablecoin.

The group was particularly concerned about Sun’s involvement in wBTC project.

“We can infer that Justin Sun will have significant influence or control over the joint venture managing WBTC … Since TUSD was placed into Justin Sun’s control, it has seen market deterioration in operational processes and transparency, including the resignation of the previous management team, suspension of real-time proof of reserves, and several significant de-pegs caused by interruptions in redemption service,” said BA Labs.

Coinbase to Create a “Trustworthy” Wrapped Bitcoin Token?

Coinbase’s backing will instantly make cbBTC the biggest challenger to wBTC’s dominance in the wrapped Bitcoin token sector.

After all, Coinbase is the most reputable cryptocurrency exchange in the world.

Its co-founder and CEO Brian Armstrong has long fought to maintain Coinbase’s status as a compliant and safe exchange, best exemplified by Coinbase’s hesitancy to list assets other than BTC and ETH in 2017, despite new entrant Binance blowing past competition with exotic token listings, native BNB Coin offering and ICO Launchpad features.

Given how successful USDC has become, it makes me wonder whether having a “trustworthy” brand back a crypto project is more attractive for users than decentralization and trustlessness.

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