Coinbase CLO Responds to Bankruptcy Concerns

Paul Grewal, Chief Legal Officer at Coinbase, has clarified the matter of the latest 10q. This contained worrying language regarding the management of customers funds in the event that they go bankrupt. Grewal said that Coinbase’s bankruptcy is unlikely and explained how users can keep their funds safe.

Are customers’ funds safe?

The CLO stated Wednesday that customer funds are separate from corporate assets in Coinbase’s internal audited ledger. There are no doubts about who’s fiat currency or cryptocurrency belongs to.

The exchange also does not lend or engage in other activities with customer assets, unless explicitly authorized to do so. Coinbase stated in the May 10q report that crypto assets of customers were not covered by FDIC insurance.

Traditional finance allows banks to borrow money from customers by using funds they have deposited. Customers are at risk in the event that a bank runs, as only a small fraction of deposits can be withdrawn at any one time.

Grewal stated that Coinbase holds customer assets at a 1:1 ratio. This means that our customers have funds available 24 hours a days, 7 days a săptămână, and 365 days a year.

The Bankruptcy Black Swan

The final point of the legal officer was to address the retail user agreement. This agreement has been updated in order to clearly state that assets of retail customers are protected under UCC Article 8 just like those of institutional clients.

This is in contradiction to the original report’s assertion that custodial-held cryptocurrency assets could be subjected to “bankruptcy proceedings” and be considered property under bankruptcy estate. It stated that such customers could be treated like our general unsecured creditors.

Grewal stated that the modification does not affect the company’s ability to effectively manage digital assets. He stated that digital assets held in his custody are Article 8 financial assets.

Brian Armstrong, Coinbase CEO, apologized for the language in the report shortly after its release. He said that disclosure was reasonable at the time because such legal protections have yet to be tested in court regarding crypto assets.

The CEO stated that “we should have updated our retail terms sooner” and that we hadn’t communicated proactively when the risk disclosure was added.

Coinbase stock has fallen dramatically in the last months in line with cryptocurrency markets. According to a spokesperson for the company, four of its top executives sold over $1 billion of COIN stock between going public and were accompanied by Brian Armstrong.