By Paul Grewal, Chief Legal Officer
A couple of weeks ago, a newly required SEC disclosure we made in our 10Q created some noise about how Coinbase holds crypto assets and what could happen in the highly unlikely event of the company’s insolvency. This led to some genuine concern among people who hold crypto assets on Coinbase.
Even though customer assets have always been protected, we know this was scary — especially in a down market. We want to share how we’re keeping your assets safe today and in the future:
- Your funds are your funds, and your crypto is your crypto: Coinbase maintains internal systems, like a bank or a broker. Our fully audited ledger identifies your account, your fiat and crypto holdings, and tracks your account activity in real time. There’s never a situation where customer funds could be confused with corporate assets.
- We will never repurpose your funds: We do not lend or take any action with your assets, unless you specifically instruct us to. Many banks and financial institutions use customer funds for commercial purposes including lending and trading, meaning that they often hold only a fraction of their customer assets at any given time. Coinbase always holds customer assets 1:1. This means that funds are available to our customers 24 hours a day, 7 days a week, 365 days of the year.
- We have clarified our Retail User Agreement: We have always protected our customer funds both legally and physically. 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 is not a change in how we do business. We believe that digital assets in our custody have always been Article 8 financial assets, but have clarified this so that there will not be any doubt.
We hope that the clarifications above provide you — our customer — with confidence and clarity. We apologize for the confusion around the disclosure. Even though it was in response to guidance applicable to any publicly traded crypto custodian from an important regulator, it caused unnecessary uncertainty and anxiety.
The crypto space is a dynamic one, and we will always seek to use the best structures to ensure that our clients’ assets are managed in the safest way possible.
As Brian shared with our teams a couple weeks ago, volatility in crypto — or any market — is inevitable. We can’t control it, but we do plan for it. That’s why, through the ups and downs of crypto over the last 10 years, Coinbase has focused on building — scaling through the highs and innovating through the lows.
Nothing about Coinbase has changed. If anything, we’re in an even stronger position than we were a few months, or a year ago — and we’ll keep working to be the simplest, most trusted way for people to get involved in crypto. #Longlivecrypto