Coinbase Launches cbBTC, a New ERC-20 Token That Is 'Backed 1:1' by Bitcoin (BTC) Held by Coinbase

Coinbase unveiled the Coinbase Wrapped BTC (cbBTC) last week, saying it will empower millions of Bitcoin holders to securely access decentralized finance (DeFi) apps on the Base and Ethereum networks.

Coinbase recently unveiled the Coinbase Wrapped BTC (cbBTC) token, an ERC-20 asset that is pegged to BTC and designed to enable users to access decentralized finance (DeFi) applications on Base and Ethereum. According to the exchange, cbBTC aims to empower millions of Bitcoin holders to utilize their digital currency in new ways within the DeFi ecosystem.

Coinbase Launches cbBTC Token, Bitcoiners Raise Concerns

Coinbase announced the launch of cbBTC on Friday, highlighting its role in facilitating access to DeFi apps on Base and Ethereum.

cbBTC is onchain.cbBTC is an ERC20 token that is backed 1:1 by Bitcoin (BTC) held by Coinbase.This means millions of BTC holders can now securely access DeFi apps on @base and Ethereum ecosystems—with more chains coming soon.Here’s what you need to know ↓ pic.twitter.com/nF8mF3JGms

The exchange noted that cbBTC will eliminate a friction point "by allowing customers to use Bitcoin they already hold in new ways onchain." According to blockchain researcher Tom Wan, the new token achieved a market cap of $100 million on its first day.

.@coinbase cbBTC has reached $100M market cap on day 1 (43% of the supply is on Base and 57% on Ethereum) pic.twitter.com/5w8T7x2W7o

Questions Emerge Around cbBTC, Justin Sun Raises Concerns

Within hours of the cbBTC launch, questions were raised about the wrapped Bitcoin token, including by Justin Sun, the founder of the TRON blockchain.

According to Sun, Coinbase's wrapped BTC token "lacks proof of reserve, no audits, and can freeze anyone's balance anytime." Being a centralized exchange, Coinbase acts as an intermediary between buyers and sellers.

#cbbtc lacks Proof of Reserve, no audits, and can freeze anyone's balance anytime. Essentially, it’s just 'trust me.' Any U.S. government subpoena could seize all your BTC. There's no better representation of central bank Bitcoin than this. It’s a dark day for BTC.

Sun further stated that the system around cbBTC allows "any U.S. government subpoena" to seize all of a user's Bitcoin holdings. "There's no better representation of central bank Bitcoin than this," he added.

While many users agreed with Sun regarding the purported issues around cbBTC, prominent non-fungible token (NFT) influencer Artchick.eth pointed out that "Sun is a soon to be owner of WBTC (Wrapped Bitcoin) which is cbBTC's main competitor." Notably, WBTC was launched in 2019 by a joint effort of Kyber, Ren, and Bitgo. Sun has yet to respond to Artchick.eth's claim.

Bitcoiners Join cbBTC Call Out

Over the weekend, several Bitcoiners voiced their concerns regarding Coinbase's new token.

Longtime BTC educator Duo Nine stated that the absence of proof of backing on the Bitcoin chain for the cbBTC token "is all the proof you need to stay away from Coinbase." While acknowledging that Sun "may not be the most trustworthy character in crypto," Duo highlighted that his concerns about cbBTC's fundamentals "make a valid point."

The fact that their cbBTC token has no proven backing on BTC chain is all the proof you need to stay away from Coinbase.You can't take them seriously until that changes.

Emphasizing the importance of self-custody, Heidi Chakos of the crypto education YouTube channel Crypto Tips highlighted that cbBTC is "not real Bitcoin." She reiterated that the only genuine BTC a holder can have is on the BTC network.

🚨 Red Flag for Coinbase Users: What You Need to Know About cbBTC! 🚨Heads up, it’s not real Bitcoin—it’s a wrapped version, and it comes with centralization risks that could catch you off guard. The only real BTC is on the Bitcoin network! Not your keys, not your crypto! pic.twitter.com/BN5sGAylfF

Moreover, Sean Clarke, another longtime Bitcoiner, warned that the cbBTC is designed "to trick you out of holding Bitcoin in self custody." He went on to urge the exchange to at least post their proof of reserves.

Coinbase have launched cbBTC this is a setup to take your bitcoin and give you nothing, designed to incentivise yield farming, leverage and degeneracy. To trick you out of holding #bitcoin in self custody.@coinbase not surprised but still disappointed. Also post proof of… pic.twitter.com/m6R8hKDrDj

Coinbase CEO Addresses Audits

In response to concerns regarding audits, Coinbase CEO Brian Armstrong stated that Deloitte audits Coinbase. However, he argued that the exchange's institutional clients would not want "people dusting all their addresses, and it's not our place to