Coinbase, the custodian of the most popular wrapped Bitcoin token in the world, wBTC, is facing controversy and trust concerns. As a result, Coinbase plans to develop a wrapped Bitcoin token called cbBTC.
We are seeing hints of what the cryptocurrency market may look like in the near future, when decentralization and trustlessness are not as important as they once were, as cryptocurrencies continue to creep closer to widespread acceptance.
Instead, as cryptocurrency ventures supported by respectable and “trustworthy” organizations, like Circle’s USDC and maybe Coinbase’s cbBTC, flourish, conventional finance words like “fiduciary” are becoming the standard.
Trusted vs. Untrusted
Crypto’s most popular stablecoins, apart from Bitcoin and Ethereum, are fiat-pegged tokens that provide dollar exposure, hyperinflation hedge, and global market stability. However, they are neither trustless nor decentralized, and their current state poses a problem.
USDT, the world’s largest stablecoin, is centralized and issued by Tether, its operating company. However, the company’s history raises doubts about its fiduciary duties, particularly for idealist crypto users, as it maintains reserves backing the tokens.
Tether was fined $42.5 million by the Commodity Futures Trading Commission (CFTC) in October 2021 for falsely claiming it had enough U.S. dollar reserves to back every USDT in circulation from June 2016 to February 2019, despite having fiat reserves to redeem only 27.6% of USDT tokens in circulation.
Tether and USDT’s market cap has grown significantly between January 2021 and August 2024, from $21 billion to $116 billion, despite the absence of trustlessness and decentralization. This growth is a result of brand wins but also challenges crypto’s goals.
Coinbase cbBTC: Distinct Product, Similar Strategy
Coinbase and Circle formed Centre Consortium in 2018 to offer USDC, a “safe” stablecoin alternative to USDT. USDC’s regulatory-first and transparent approach has made it the preferred choice for institutional and corporate clients. With a market cap of $34 billion, USDC has gradually surpassed USDT’s dominance, making it the second-largest stablecoin globally.
Coinbase and Circle have positioned trust as the ultimate currency for their stablecoin venture, with Circle-issued USDC and EURC being the only compliant stablecoins in the European market backed by an Electronic Money Institution license, and Coinbase aims to do the same with wrapped Bitcoin tokens.
Concerns About wBTC Open the Door for Coinbase’s cbBTC
The introduction of cbBTC was made in response to concerns expressed by the cryptocurrency community regarding BitGo’s choice to transfer its wBTC custodian role to a new joint venture business created by Tron pioneer Justin Sun, BitGo, and BiT Global.
In 2018, BitGo, Kyber Network, and Republic Protocol formed wBTC. BitGo is the sole keeper of wBTC; Kyber and Republic carry out the functions of “merchants,” or the entities that start the mint and burn procedures and give users access to wBTC.
MakerDAO has been urged by BA Lab, a member of the Stability Scope Advisory Council, to lessen its exposure to the wBTC collateral used in the minting of the DAI stablecoin. The group is concerned about Justin Sun’s significant influence over the joint venture managing WBTC, which has led to market deterioration, resignations, suspension of real-time proof of reserves, and significant de-pegs.
Will Coinbase produce a wrapped bitcoin token that is “trustworthy”?
Coinbase’s backing will make cbBTC the largest challenger to wBTC’s dominance in the wrapped Bitcoin token sector, as Coinbase is the world’s most reputable cryptocurrency exchange.
Coinbase’s co-founder and CEO, Brian Armstrong, has emphasized maintaining its compliant and safe status, despite new entrant Binance outperforming it with exotic token listings, native BNB Coin offerings, and ICO Launchpad features. The success of USDC raises questions about the appeal of a “trustworthy” brand to users.
