The quarterly earnings call of Coinbase has thrust the crypto exchange platform into limelight. Specifically a certain filling by the company has caught the eye of Zerodha founder Nithin Kamath.
Nithin Kamath tweeted a warning to Indian crypto traders using Coinbase, because the company’s latest filing states that customer crypto assets could be at risk in case of bankruptcy. The warning is worrisome considering the drop of the platform’s trading volume.
Kamath goes on to say that unlike “the stock market where stocks are held in a demat with a depository & have no broker risk, crypto with exchanges carry a risk.”
What this means is that in case of Coinbase files for bankruptcy, the crypto assets held by the exchange would be considered property of the bankruptcy proceedings.
The customers would be considered as unsecured creditors, making them the last one to be paid and last in line for claims.
The CEO of Coinbase, Brain Armstrong also took to Twitter to explain the reason for this filing, and calm the users of the platform.
The CEO first clarifies that the company is in no way at risk of bankruptcy. The reason for the filing is a new SEC requirement called SAB 121.
He goes on to say that he believes that the ‘prime and custody’ customers of the platform have strong legal protections enough to safeguard their assets, even in an event as disastrous as filing for bankruptcy.
He discloses that the platform is taking steps to safeguard the assets of retail customers in a similar manner. He apologises for not having taken the necessary steps before.
Brain points out that these legal protections have not been tested in court before, specifically for crypto assets. He clarifies that even though unlikely, it is possible that a court might decide to consider customer assets as part of bankruptcy proceedings, even at the cost of the customers.
Brian apologises for not communicating to the user base proactively when the risk disclosure was added and ended the thread by reminding readers of their option of self-custodial wallet solutions.
In similar news, Brian Armstrong in the same quarterly call disclosed to his employees that the reason for disabling UPI payment option for Indian users was ‘informal pressure’ from the RBI.
