Coinbase Chief Legal Officer Paul Grewal has clarified the company’s last 10q, which included worrying language related to managing customer funds in the event of bankruptcy. Grewal stated that a Coinbase bankruptcy event is highly unlikely and explained how user funds are currently kept safe.
Are client funds safe?
in a statement on Wednesday, the CLO clarified that customer funds and corporate assets are kept separate within Coinbase’s internally audited ledger. Therefore, there are no questions about who owns the fiat currency, or cryptocurrency.
Additionally, the exchange does not engage in lending or other activities with client assets unless given explicit permission to do so. in the 10q report published in May, Coinbase claimed that customers’ crypto assets were not protected by FDIC insurance.
In traditional finance, it is common practice for banks to use the funds deposited by their customers to make loans. This means that only a fraction of total deposits are available for withdrawal at any given time, creating risks for customers in the event of a bank run.
“Coinbase always holds client assets 1:1,” Grewal stated. “This means that the funds are available to our clients 24 hours a day, 7 days a week, 365 days a year.”
The black swan of bankruptcy
The legal officer’s final point addressed the company’s retail user agreement. The agreement has been updated to clearly state that the assets of retail clients are protected by article 8 of the UCC, just like institutional clients.
This is contrary to the initial report’s assertion that crypto assets in custody could be subject to “bankruptcy proceedings” and be considered the property of a bankrupt estate. “Such clients could be treated like our general unsecured creditors,” he said.
Grewal stated that the amendment is not a change in the effective treatment of digital assets by the company. “We believe that the digital assets in our custody have always been Article 8 financial assets,” he said.
Coinbase CEO Brian Armstrong issued an apology for the report’s language shortly after it was published. He explained that the disclosure made sense at the time, as such legal protections have yet to be tested in court for crypto assets.
“We should have updated our retail terms sooner, and we didn’t communicate proactively when this risk disclosure was added,” the CEO said.
Coinbase shares have shrunk massively in recent months, along with the cryptocurrency market. A company spokesperson recently revealed that four top officials have jointly sold more than $1 billion worth of COIN shares since they went public, of which Brian Armstrong was one.
Binance Free $100 (Exclusive) – Use this link to sign up to receive $100 free and 10% off Binance Futures first month fees (terms).
PrimeXBT Special Offer: Use this link to sign up and enter the code POTATO50 to receive up to $7,000 on your deposits.