Following concerns of unsecured funds and bankruptcy, Coinbase CEO Brian Armstrong assured users that their “funds are safe as they’ve always been”. The crypto exchange in its first-quarter report for 2022 saw a loss of $430 million. The company also recorded a drop in the number of users transacting – from 11.4 million to 9.2 million.
The report saw concerns about bankruptcy protection being raised. A tweet quoting Coinbase’s disclosure stated that in event of a bankruptcy, the crypto assets held by the platform on behalf of its customers may be subject to bankruptcy proceedings. It further said that users will be treated as “unsecured creditors” when this happens. This added fuel to rumor mills that if Coinbase did go bankrupt, the cryptocurrencies will become company property.
But Armstrong highlighted that Coinbase has “no risk of bankruptcy”. He said there is an unlikely possibility that a court would decide to take up consumer assets as part of the company in the proceedings even if it harmed customers. The CEO explained that Coinbase included a new risk factor based on an SEC requirement called SAB 121. It is a newly required disclosure for public companies that hold crypto-assets for third parties.
Armstrong said Coinbase’s prime and custody customers have strong legal protections within the terms of service. It protects the assets in the event of bankruptcy. Coinbase is working on updating the terms to also apply the same protections for its retail investors. Furthermore, Armstrong reassured Coinbase’s users that the crypto exchange survived many crypto cycles and is well suited to operate within harsh waters.
