This is an archive of our post on Aave governance forum. Read the full thread here.

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.