Express

Coinbase CLO Says Customer Funds are Protected Despite SEC Disclosure Saying Otherwise

Tyler Irvin

Summary: Paul Grewal, the chief legal officer (CLO) of Coinbase, highlighted via a blog post on Thursday that customer funds in Coinbase are protected legally and physically in response to growing fears from the crypto community that the contrary is true. These fears were sparked from an SEC disclosure the cryptocurrency exchange made back in May, ...

Paul Grewal, the chief legal officer (CLO) of Coinbase, highlighted via a blog post on Thursday that customer funds in Coinbase are protected legally and physically in response to growing fears from the crypto community that the contrary is true.

These fears were sparked from an SEC disclosure the cryptocurrency exchange made back in May, where certain parts of the document said crypto-assets held on behalf of customers may be “subject to bankruptcy proceedings.” In other words, the customer assets being held by Coinbase may not be protected if Coinbase goes bankrupt.

To make matters worse for Coinbase, the SEC disclosure came right when Coinbase reported a $430 million loss in the first quarter of this year. It also came when Coinbase’s junk bonds began to lose value. In addition, Twitter commenters voiced their indignation with the crypto exchange and suggested that they could in fact go bankrupt.

That is when Coinbase’s CLO stepped it with his blog post on Thursday reassuring clients and the crypto community that customers with crypto-assets held by Coinbase have nothing to fear.

“We have always protected our customer funds both legally and physically,” Grewel said. “We also recently updated our Retail User Agreement to expressly highlight the applicability of UCC Article 8 — the same legal protection that our institutional clients also rely on to protect their assets in the event of a custodian bankruptcy.”

This statement by the CLO suggests that crypto-assets held by Coinbase are treated as Article 8 financial assets and are thus protected in the event of a bankruptcy. Grewal also highlighted that customer crypto funds will never get confused with corporate assets and that they will never repurpose customer funds. While other institutional banks take customer funds and repurpose them through lending or trading, Coinbase does not do so, allowing customers to access their funds at any time.

Lastly, Grewal tweeted on Wednesday saying the crypto exchange is “financially strong” with more than $6 billion in the bank suggesting that there is no reason to believe Coinbase will go bankrupt anytime soon.