[ARFC] Onboard cbBTC to Aave v3 on Base and Mainnet

[ARFC] Onboard cbBTC to Aave v3 on Base and Mainnet

Author: @ACI (Aave Chan Initiative)

Date: 2024-09-10

Summary

The proposal aims to onboard Coinbase’s cbBTC, to the Aave v3 protocol on Mainnet main instance & Base.

Motivation

cbBTC, a new Bitcoin wrapper offering from Coinbase, is set to launch in the coming weeks. As a centralized and trusted entity in the cryptocurrency space, Coinbase’s entry into the wrapped Bitcoin market with cbBTC brings a unique value proposition to the Aave ecosystem.

This new asset will diversify the options available for Bitcoin holders looking to participate in DeFi activities on Aave v3. The introduction of cbBTC to Aave v3 will provide users with more choices for utilizing their Bitcoin holdings, increasing liquidity and engagement within the protocol.

Furthermore, cbBTC’s integration aligns with Aave’s commitment to offering a wide range of high-quality assets. It will enable users to tap into Coinbase’s liquidity and reputation while benefiting from Aave’s established lending and borrowing functionalities. This synergy between a major centralized exchange and a leading DeFi protocol could attract more mainstream users to Aave, contributing to the overall growth and adoption of the platform.

Benefits of listing cbBTC:

With the ongoing changes with WBTC it is pertinent to have alternative wrapped BTC tokens for use on Aave. With Coinbase as the issuer and custodian, their reputation will likely make this a trustworthy alternative to WBTC.

Market Impact

The addition of cbBTC may take marketshare from existing wrapped BTC assets including WBTC but as the purpose is to provide an alternative, this is not seen as negative. Overall, it is believed this will have slight positive impact on BTC asset adoption on Aave.

Chain to be deployed

This will be deployed on Base and ETH mainnet.

Proof of Liquidity and deposit commitments:

There will be $150,000 of incentives over 3 months from the Aave Merit program.

There are interested parties however, no concrete deposit commitments can be made until pool parameters have been set.

Useful links

Specification

Ticker: cbBTC

Contract address for both Mainnet and Base: 0xcbb7c0000ab88b473b1f5afd9ef808440eed33bf

We recommend the following parameter settings:

Parameter Value (Ethereum) Value (Base)
Isolation Mode No No
Borrowable Yes Yes
Collateral Enabled Yes Yes
Supply Cap 450 200
Borrow Cap 45 20
Debt Ceiling - -
LTV 73% 73%
LT 78% 78%
Liquidation Bonus 7.5% 7.5%
Liquidation Protocol Fee 10.00% 10.00%
Variable Base 0% 0%
Variable Slope1 4% 4%
Variable Slope2 300% 300%
Uoptimal 45% 45%
Reserve Factor 20% 20%
Stable Borrowing Disabled Disabled
Flashloanable Yes Yes
Siloed Borrowing No No
Borrowable in Isolation No No
E-Mode Category N/A N/A

Disclaimer

The Aave Chan Initiative is not directly affiliated with Coinbase and did not receive compensation for creation of this proposal.

Next Steps

  1. Publication of a standard ARFC, collect community & service providers feedback before escalating proposal to ARFC snapshot stage
  2. If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal

Copyright

Copyright and related rights waived under CC0.

13 Likes

I have significant concerns about the timing and implications of this proposal that I believe warrant careful consideration by the Aave community.

The proposal to onboard cbBTC seems premature, given that the asset is not yet live. This raises several critical questions:

  1. Minting and Redemption Mechanisms: Without a clear understanding of how cbBTC will be minted and redeemed, it’s challenging to assess the potential risks and benefits to the Aave protocol.

  2. Proof of Reserves: What assurances do we have regarding the backing of cbBTC? Who has access to the private keys custodying these assets? These are crucial questions for maintaining the integrity and trust of the Aave ecosystem.

  3. Liquidity Concerns: As of now, there appears to be no DEX liquidity for cbBTC. While this may change by the time the ARFC vote concludes, it’s a significant factor that needs to be addressed before onboarding. I do not see how this proposal can even be properly voted on when liquidity does not yet exist for the asset.

Regulatory Risks

The regulatory landscape for cryptocurrencies, particularly in the United States, is increasingly complex and often antagonistic. This raises several concerns:

  1. Coinbase’s Regulatory Exposure: As a U.S.-based company, Coinbase is subject to potential regulatory actions that could directly impact cbBTC. How can we ensure that Aave users won’t be affected if Coinbase faces sanctions or other regulatory challenges?

  2. Custodial Risks: If cbBTC is primarily custodied by Coinbase, does this not introduce a single point of failure that represents a large risk to the credit worthiness of the asset?

While I understand the strategic importance of onboarding new assets for Aave’s growth, we must question whether we’re compromising our principles for short-term gains:

  1. Exceptional Treatment: Are we making too many exceptions for cbBTC due to its potential to drive growth? How does this align with our established standards for asset onboarding? In particular, consider tBTC. @bgdlabs just posted their thorough technical review of the architecture and contracts underlying tBTC. I would hope that cbBTC undergoes a similarly thorough vetting process. It should also be noted that tBTC is only now just receiving favorable attention for being onboarded. Their very first attempt at getting added was in 2020!

  2. Influence of Capital: It’s crucial to consider whether the Aave DAO is being unduly influenced by the promise of increased liquidity. Our decisions should be guided by the long-term health and principles of the protocol, not just immediate financial incentives.

While growth is important, we should not compromise on our standards. Let’s ensure we have thorough answers to the above questions and a comprehensive technical review before moving forward. Lastly, it seems that the standard vetting process has been sidestepped entirely, and cbBTC is receiving special treatment that other assets have not been afforded. This sets a dangerous precedent and raises questions about the integrity of our decision-making process.

Regardless of where one stands on these broader issues, at the very least I think we can agree that this proposal cannot even be properly voted on when liquidity does not yet exist for the asset. How can we make an informed decision about risk parameters, or choice of oracle for an asset that isn’t even trading?

15 Likes

As someone who’s been a long-term HUGE supporter of Aave but has been lurking in guest mode on this forum, I felt compelled to comment on this proposal, as it raises some significant concerns about the long-term stability and integrity of the platform.

I agree with many of the points raised by @midapple, especially around the regulatory risks of cbBTC.

Furthermore, Coinbase’s frequent run-ins with the SEC are a serious issue. If Coinbase were ever to have their accounts frozen for investigation or face further regulatory action, it would put all Aave users at severe risk. This would mean that one entity, in one country, could effectively control the fate of BTC holders globally. Do we want to expose Aave users to that level of vulnerability?

Additionally, the liquidity fragmentation issue shouldn’t be overlooked. Introducing cbBTC could split liquidity between it and wBTC, which would harm both assets’ effectiveness on Aave. Fragmented liquidity means shallower pools, higher slippage, and possibly increased borrowing costs. wBTC already has established liquidity and trust in DeFi—is it really worth diluting that by introducing another centralized wrapped BTC asset?

The $150,000 in incentives also raises some red flags. Yes, it’s mentioned that these funds are from the Aave Merit Program, but who is actually sponsoring this? :thinking: And why use it for cbBTC when assets like tBTC is already used as an alternative by the community? Or why not allocate these funds to address more pressing issues on Aave rather than potentially introducing another centralized problem with cbBTC? The use of these funds feels questionable and adds to the uncertainty surrounding this proposal.

Another point that can’t be ignored is the reputation risk for Aave. Onboarding cbBTC without a proven track record, especially with Coinbase’s regulatory issues, could backfire if cbBTC faces any operational or compliance problems. wBTC has been reliable, and rushing into cbBTC could harm Aave’s credibility if anything goes wrong.

In summary, I believe wBTC is serving Aave well for now. While it’s good to explore new assets, this proposal feels too rushed and risky, especially with cbBTC not yet live. I think most Aave community members would prefer to wait, remain on the stable side, and revisit this proposal in the future when we have more data to make a well-informed decision. For now, the potential risks—regulatory, liquidity fragmentation, and reputational—seem too high.

And hey, we can always revisit this when Coinbase, as a publicly traded company, gets a Proof of Reserve in place to begin with :exclamation: Remember, folks—not your keys, not your crypto. Stay smart. :wink:

10 Likes

Coinbase just released a statement thst cbBTC is now live on Base and Ethereum. https://www.coinbase.com/de/blog/coinbase-wrapped-btc-cbbtc-is-now-live

With already 100m in market cap I think it’s a great addition to wBTC. And it is steadily growing. Coinbase majes the conversion pretty easy. And while there are some concerns regarding one entity controlling it we have to think about which entity this is and that at Aave we are able to reduce risk with risk parameter curated by @ChaosLabs and @LlamaRisk.

I am supportive of adding both assets and helping Coinbase to grow their product.

Edit: Merit is paid with revenue made by the protocol this is possible because Aave is sustainable. That’s why it’s important to Just use Aave.

10 Likes

I do agree with @EzR3aL :handshake:
Many of us need some wrapped BTC diversification options and having cbBTC available from day one on AAVE will avoid many loyal AAVE users to have to move to another lender.

5 Likes

There is no information on the minting/burning mechanism ser - let’s first wait for more clarity on how it works under the hood ;)

5 Likes

Actually @zKilian_Swell I think we have this information: https://www.coinbase.com/blog/coinbase-wrapped-btc-cbbtc-is-now-live

I quote Coinbase: “When Coinbase users send their BTC from Coinbase to an address on Base or Ethereum, that BTC will automatically be converted 1:1 to cbBTC. When users receive cbBTC in their Coinbase accounts, it will be converted 1:1 from cbBTC to BTC.”

I mean for the centralised part of things it’s pretty clear from my point of view. Coinbase manages the mint/burn process on his side, yes it’s not transparent, yes it’s a blackbox, but this is due to the nature of this centralised wrapped BTC alternative. Can we expect more?

4 Likes

With the @ACI we’re supportive of this proposal:

At Aave we always supported curated diversity to our users, as an example we currently provide with 5 different LST/LRT options.

Our goal is to provide diversity and support decentralization while maintaining the highest quality standard in our industry.

We support the inclusion of cbBTC as a new option for the Bitcoin community in Aave. Just like BTC.b is an excellent match for the Avalanche ecosystem, we believe cbBTC will have a natural market fit and an audience in both Base & Mainnet Aave pools

we believe decentralization is a spectrum and specific audience will have their preference.

If we look at the currently discussed onboarding in this vertical, tBTC seems a natural fit for an audience looking for a more decentralized option while cbBTC might get the favor of a more institutional crowd.

Both audiences will find what they need on Aave.

Just use Aave.

7 Likes

Coinbase has deep liquidity in bitcoin because it has been given the right by US Marshall to be the sole custodian of US government bitcoin. Coinbase is working with the federal government to provide custodial services for the crypto assets that were seized from criminals. This involves trading and liquidation of federal government bitcoin reserves at competitive rates. The US government put Coinbase in control of approximately $13 billion in bitcoin. There is deep verifiable liquidity.

https://www.coinbase.com/blog/u-s-marshals-service-chooses-coinbase-to-safeguard-trade-its-large-cap

This also means that the SEC will not subpoena Coinbase for cbBTC token and will not seize them as the federal government gave Coinbase custody of the bitcoin in the first place. cbBTC will be very reliable in the future.

cbBTC does not replace a token like tBTC and its decentralized nature. Ideally we would have both available in Aave. That being said, this proposal is for cbBTC which I vote in favor of. I can vote in favor of tBTC as well on a different proposal

5 Likes

Overview

Chaos Labs supports listing cbBTC on Aave V3’s Ethereum and Base deployments.

cbBTC

cbBTC is a token backed 1:1 by native BTC held by Coinbase. Minting is initiated when a user withdraws BTC held on Coinbase to Ethereum or Base. cbBTC is burned when it is deposited to a Coinbase account, with a corresponding amount of BTC released from the reserve and assigned to said account. Importantly, no fees are associated with minting and burning, reducing friction in this process and likely improving peg stability.

Minting and burning uses the same set of smart contracts as used in cbETH, which we previously recommended listing; “no material contract code” has been modified in deploying cbBTC. cbBTC utilizes both hot and cold wallets, and redemption rights remain with cbBTC holders; additional details are dictated in the Coinbase User Agreement.

While we recognize users’ concerns about regulatory and centralization risk; we find that cbBTC presents similar risks in these regards as cbETH and USDC, both assets which have been listed on Aave previously.

Pricing cbBTC

Given the structure of cbBTC, particularly its minting and burning mechanism, we anticipate that cbBTC’s price will closely track that of BTC. However, shortly after launch it is possible that the asset will experience volatility relative to BTC, which may cause unnecessary liquidations and potential cascades. Given these factors, we recommend initially pricing the asset using the BTC/USD market oracle.

LTV, Liquidation Threshold, and Liquidation Bonus

While we are not able to analyze the asset’s historical price volatility, given the pricing set up described above, we recommend aligning cbBTC’s collateral parameters with WBTC’s: 73% LTV and 78% LT. However, we recommend setting the Liquidation Bonus at 7.5% initially, higher than WBTC’s 5%. This higher parameter will help ensure that liquidations are processed even in the event of significant peg or BTC volatility.

Supply and Borrow Caps

We utilize our usual supply cap methodology, setting it at 2x the liquidity available beneath the LB price impact. Additionally, we will recommend setting the borrow cap at 10% of the supply cap, as we have observed little historical borrow demand for BTC-linked assets.

We also note that these measurements are taken shortly after launch, and we anticipate liquidity will improve; we are prepared to facilitate cap increases using the Risk Steward after the asset is listed.

IR Curve

We recommend aligning the IR curve with WBTC’s.

Recommendations

Following the above analysis, we recommend listing cbETH on Aave V3’s Ethereum deployment. We recommend the following parameter settings:

Parameter Value (Ethereum) Value (Base)
Isolation Mode No No
Borrowable Yes Yes
Collateral Enabled Yes Yes
Supply Cap 450 200
Borrow Cap 45 20
Debt Ceiling - -
LTV 73% 73%
LT 78% 78%
Liquidation Bonus 7.5% 7.5%
Liquidation Protocol Fee 10.00% 10.00%
Variable Base 0% 0%
Variable Slope1 4% 4%
Variable Slope2 300% 300%
Uoptimal 45% 45%
Reserve Factor 20% 20%
Stable Borrowing Disabled Disabled
Flashloanable Yes Yes
Siloed Borrowing No No
Borrowable in Isolation No No
E-Mode Category N/A N/A
6 Likes

Summary

LlamaRisk supports onboarding cbBTC and welcomes the added diversity of offerings in the wrapped bitcoin ecosystem, especially from a reputable actor. Day one liquidity on the mainnet supports conservative parameters. As cbBTC matures and liquidity deepens, these parameters may be relaxed.

Our key considerations are as follows:

  • cbBTC is a wrapped Bitcoin asset launched by Coinbase, backed 1:1 with native BTC custodied by Coinbase without rehypothecation. It uses a simple, audited smart contract system.
  • Liquidity is currently limited but less critical due to redemption via Coinbase. The asset has maintained price parity with WBTC since its launch.
  • High dependency risk exists on Coinbase as the custodian and on KYC/AML requirements for minting and redemption.
  • Governance and access control are centralized with Coinbase, which mitigates regulatory risk through licensing and compliance but introduces significant counterparty risk.
  • cbBTC offers a compliant wrapped BTC from a trusted entity but comes with the inherent risks of a centralized model. Continued growth and stability need to be monitored.

In summary, cbBTC is a robustly designed asset with good safeguards ensuring all tokens are fully backed and deployed by arguably one of the most reputable entities in crypto. Risks (especially access control stemming from dependability) are introduced, but these “keys” are held by an accountable entity with great collaborative incentives.

LlamaRisk would like a Proof of Reserve implemented as soon as possible. This would remove a significant element of trust from the system and reduce risk for the Aave DAO.

We’ve discussed and aligned parameter recommendations with @ChaosLabs.

Click to read full assessment

Collateral Risk Assessment

1. Asset Fundamental Characteristics

1.1 Asset

cbBTC is a wrapped Bitcoin asset launched by a leading American centralized exchange Coinbase. It is backed 1:1 with native bitcoin custodied in Coinbase’s self-managed solution. Users can wrap native Bitcoin into cbBTC or unwrap the asset into native Bitcoin through their Coinbase account.

The asset is live on Base and Mainnet. It is an ERC20 designed by Coinbase and uses the Wrapped Token OS standard. cbETH uses this contract standard, which PrismaRisk has previously reported on. It was launched on September 12th, 2024, with the contract being deployed on August 20th on both networks.

cbBTC was built to be compatible with DeFi applications, boosting capital efficiency for the ecosystem. Aave hosts various wrapped assets, including WETH, weETH, and wstETH. It is an established asset class in the DAO that has seen significant demand across many chains with billions of dollars of TVL supplied.

1.2 Architecture


Source: LlamaRisk

cbBTC is an asset that has moving parts in three separate areas: the Bitcoin Network, Ethereum (including its rollups), and Coinbase’s web2 exchange interface.

BTC is moved from user addresses to Coinbase exchange addresses on the Bitcoin network. Coinbase exchange UI will register the new deposited amount as Bitcoin. The user may request to withdraw this BTC to Ethereum or mainnet, after which this native Bitcoin is moved into Coinbase’s self-custodied cold storage solution.

After the request to withdraw it, cbBTC is minted on the desired network (currently Ethereum or Base) and sent to the user’s specified address.

This design intends to ensure each Ethereum / Base cbBTC is always backed 1:1 with native Bitcoin held in cold storage. It also makes Coinbase a bridge for Bitcoin between networks without requiring any swap (something currently not possible; the exchange does not support WBTC).

image

Source: Wrapped Tokens OS Documentation

The cbBTC contract is the same as the one used for cbETH. This simple contract has three main components: ExchangeRateUpdater, MintForwarder , and FiatTokenProxy.

  1. The proxy contract, which is an exact duplicate of the proxy contract used by centre-tokens, developed by Circle.
  2. An exchange rate updater contract (ExchangeRateUpdater.sol) is used for wrapped staked assets and contains rate-limited exchange rate updating functionality.
  3. A mint forwarder contract (MinterForwarder.sol) containing rate-limited minting functionality for the wrapped tokens.

1.3 Tokenomics

cbBTC’s tokenomic structure is straightforward, with 1 Bitcoin chain and Bitcoin always backing one cbBTC. No governance token has been issued, and no plans for this have been documented. Some ecosystem participants have pointed out that Coinbase is a publicly traded entity with a fiduciary duty to its shareholders, with ticker COIN. The utility of such a comparison is highly limited.

2. Market Risk

2.1 Liquidity

Mainnet

image
Source: 1inch, September 13th, 2024

Base

image
Source: 1inch, September 13th, 2024

While liquidity is critical for on-chain assets, liquidators can process cbBTC withdrawals for native bitcoin should they need it. This adds significant friction, though it still provides a backstop that reduces the importance of on-chain liquidity.

2.2 Volatility

image

Source: GeckoTerminal, September 13th, 2024

cbBTC has, over its short history, kept an on-chain peg with WBTC. The asset’s volatility is to be expected for a wrapped asset. Nonetheless, it is an extremely young asset, and we will monitor for price deviations on the DAO’s behalf.

2.3 Exchanges

This centralized asset is available exclusively on Coinbase for now. Given that it is a simple wrapper, there is effectively as much liquidity in the global Bitcoin market. As this asset matures, other CEXs may list the asset. This wrapping process depends on owning a Coinbase account, but that is a small obstacle that can easily be overcome.

cbBTC is already live on Curve with $5M liquidity to WBTC. Llama Risk strongly recommends other liquid pools be established on the mainnet, given WBTC’s upcoming structural update. Limited stablecoin liquidity that is not dependent on WBTC adds risk to the protocol as it is a point of failure for liquidators.

Aerodrome pools are live, and pools are sufficiently deep to propose onboarding.

2.4 Growth

As of 6 hours since launch, some 1800 cbBTC are already live across both Ethereum and Base. This puts the market capitalization at $104M, a large size for a short time.

3. Technological Risk

3.1 Smart Contract Risk

cbBTC uses the same contract as cbETH. This has been audited and currently holds $486M TVL. This is evidence of low smart contract risk. Thanks to a close collaboration between teams, cbBTC has been clarified as in scope for Coinbase’s HackerOne bug bounty.

Smart contract risk is low.

3.2 Price Feed Risk

We recommend using BTC/USD market oracle for the time being.

3.3 Dependency Risk

This asset is dependent primarily on the robustness and strength of Coinbase as a custodian of the native Bitcoin as well as a reliable source of truth to ensure that each cbBTC is backed 1:1. Without a Proof of Reserves readily available 24/7, significant trust is placed in the hands of Coinbase.

The asset also depends on users minting/redeeming cbBTC and providing Know Your Customer and Anti-Money Laundering information. This is a potential area that may be censored. Further censorship potential is discussed in Section 4.2.

Dependency risk, in its current form, is therefore high.

4. Counterparty Risk

4.1 Governance and Regulatory Risk

cbBTC is not governed by a DAO. There is no decentralized decision-making entity guiding the development of the asset. Coinbase controls all maintenance and development decisions, placing a significant regulatory spotlight on the asset.

Coinbase, Inc. is the issuer of cbBTC. The token’s minting and redemption process requires users to be recognized as Coinbase customers in good standing. The rights to mint or redeem cbBTC are governed by the terms outlined in the Coinbase User Agreement, ensuring that only verified customers can engage in these activities.

Holders of cbBTC maintain a legal claim to the underlying BTC, which Coinbase holds. The transfer or sale of cbBTC tokens automatically transfers ownership of the tokens and the corresponding rights to the underlying BTC, including the right to redeem the BTC later.

According to cbBTC whitepaper, custodianship of the underlying BTC involves a combination of hot and cold wallets. The cold wallet infrastructure is particularly emphasized for security, with private key materials stored in secure facilities across the United States and Europe. Importantly, no plaintext storage is used for these private keys, and no single individual controls the private keys, mitigating risks related to unauthorized access. Moreover, Coinbase does not employ sub-custodians to safeguard the custody, ensuring full control over the custody operations remains with Coinbase itself. Coinbase Custody has completed both SOC 1 Type II and SOC 2 Type II examinations and rigorous audit processes that confirm the existence of strong internal controls to safeguard client assets. These are industry best practices and should be commended.

As per Coinbase’s User Agreement Section 9.1.3 and 9.1.5, “ownership of and title to these assets [cbBTC] shall remain with such holders and not transfer to Coinbase.” This means the asset cannot be rehypothecated, which is a critical provision for its security.

Peripheral to this, as some users have identified, is an ongoing lawsuit. This lawsuit between Coinbase and the U.S. Securities and Exchange Commission (SEC), in which the SEC alleges that the exchange operated as an unregistered securities exchange by facilitating the trading of various crypto tokens that should have been registered as securities, could potentially impact Coinbase’s custodial operations. If the court ultimately rules that certain cryptocurrencies are securities, Coinbase may be required to adjust its custody practices.

Coinbase, Inc. and Coinbase Global, Inc. are defendants in this legal action. However, it is important to note that Coinbase Custody Trust Company, LLC, the U.S.-based entity responsible for custodial services, is not a defendant in the lawsuit.

Currently, no publicly available information indicates that any enforcement actions have been taken against Coinbase Custody Trust Company, LLC, or other Coinbase entities authorized to provide custodial services. Similarly, no public records confirm the issuance of freezing orders against these entities.

Nonetheless, digital assets held by Coinbase may still be subject to freezing or blocking under certain circumstances. In line with its internal compliance program, Coinbase can freeze assets by various legal and regulatory requirements, including but not limited to export restrictions, end-user restrictions, antiterrorism laws, and economic sanctions.

Given these careful legal structures and the fact that operators of wrapped assets have yet to receive public inquiry from regulators, it is reasonable to say that regulatory risk is taken as seriously as can be.

4.2 Access Control Risk

Significant access control risk is introduced with cbBTC.

On both networks, the contract is owned by a simple address. This should be some form of multi-signature wallet for greater operational security. Coinbase reports using MPC wallets, but this is not possible to verify through block explorers.

cbBTC has the following token contract permissions:

  1. Blacklist - a function enabling cbBTC to be confiscated from an address or not receive it
  2. Pause - a function globally pausing cbBTC transfer (an Unpause function is also present)
  3. TransferOwnership - a function enabling the transfer of contract ownership to other parties
  4. Update functions for blacklisters, minters, pausers, and rescuers addresses are also documented

Coinbase is a highly regulated entity with a strong track record of honest and competent operation. While these are significant permissions that would be best avoided, few better entities could hold these roles.

5. Aave V3 Specific Parameters

Jointly presented with @ChaosLabs.

Note: This assessment follows the LLR-Aave Framework, a comprehensive methodology for asset onboarding and parameterization in Aave V3. This framework is continuously updated and available here.

Disclaimer

This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with Coinbase and did not receive any compensation from Coinbase for this assessment.

The information provided should not be construed as legal, financial, tax, or professional advice.

8 Likes

You people blocking this are ridiculous. Hurry up and approve this. This should have been approved and done before it even launched.

5 Likes

Exactly what @HentaiAtWork420 said.

Coinbase is the custodian for many ETFs which is almost exactly the same as this.

IMO it should be very obvious that cbBTC is far safer than almost every other coin on this platform.

Also there is already cbETH which is working fine.

If you need more clarity and more time to figure out if a coin custodied by Coinbase is safer than a coin custodied by you know who then maybe crypto is not for you.

In regards to decentralized versions of wrapped btc, I would trust cbBTC over ANY decentralized wrapped BTC unless it is running for 10 yrs with no issues and has over 5b mkcap.

Sure, add some decentralized wbtc as well and let them develop over time and maybe one will be the leader someday.

But for now, it is insane to be debating cbBTC. Same vibes as Vanguard blocking btc etf for customers.

4 Likes

Addendum on Bankruptcy-Remoteness of cbBTC

LlamaRisk has obtained additional clarifications from Coinbase’s legal team regarding risk disclosures and bankruptcy remoteness for cbBTC. Our inquiries have resulted in the following key points:

  • Users wrapping BTC into cbBTC accept risks outlined in Section 9.2 of the User Agreement. Coinbase doesn’t guarantee BTC market value; users bear full responsibility for value fluctuations.
  • LlamaRisk’s investigation into Sections 9.1.3 and 9.1.5 revealed that while Coinbase acts as custodian for BTC underlying cbBTC, ownership remains with the cbBTC holders. This legal framework applies to all digital assets supported by Coinbase, including cbBTC.
  • Regarding Coinbase’s potential insolvency or bankruptcy, our investigation confirmed that cbBTC holders can assert ownership over custodied BTC. These assets are protected from Coinbase’s bankruptcy estate and third-party claims, as they don’t become Coinbase property and are legally insulated from Coinbase’s creditors.
14 Likes

Thank you for this great work @LlamaRisk :handshake:

1 Like

THANKS for this. I for one am too eager to jump into this asset; as looking for lower risk ways to use BTC as collateral has caused me to be blind to the risks. An excellent summary. I think we are all shaken up by the Tron news as it represents yet another blow to the credibility space.

2 Likes

Has this been approved yet?
When do we expect cbBTC to be live on Aave?

2 Likes

23rd Sep. 1:13PM which can be seen here Aave Governance - Proposal 169

2 Likes

That’s not actually true. In fact, it was confirmed to be false and there was a big fuss about it on Twitter when Coinbase updated their ToS to highlight that in the event of bankruptcy, if the company enters ch11 or ch7 proceedings then the deposited assets change beneficial ownership to Coinbase.

The same happened at FTX, which had the same explicit ToS that said assets are the beneficial and legal ownership of the creditor, but it made no difference in the Ch11 bankruptcy case.

1 Like

Section 9.1.5 of the User Agreement provides a clear statement regarding the ownership and title to BTC/cbBTC: “Bitcoin that has been wrapped as cbBTC are held by Coinbase as custodial assets for the benefit of holders of cbBTC, and ownership of and title to these assets shall remain with such holders and not transfer to Coinbase”.

As a general principle, Section 2.7 incorporates the same protections. It affirms that the title to all digital assets supported by Coinbase remains with the users, ensuring that these assets are not transferred to Coinbase under any circumstances. Coinbase holds these assets for its customers, which are legally separate from Coinbase’s own property. As a result, the assets are not subject to any claims by Coinbase’s creditors.

The explanations provided by Coinbase’s legal team are comprehensive and sufficient for conducting an asset review. They clarify the legal structure surrounding the ownership and custody of digital assets, ensuring that cbBTC holders retain full ownership rights. Nevertheless, this review should not be construed as a legal analysis of Coinbase’s potential insolvency, nor should it be directly compared to other insolvency proceedings. Each situation involves unique legal and factual circumstances, and while Coinbase has provided a well-structured custodial framework, a detailed legal analysis of hypothetical bankruptcy scenarios would require a much more in-depth examination of applicable bankruptcy laws and how they might interact with digital asset custody arrangements.

5 Likes