Reiterating the safety of retail investor funds at
‘Tail Risk’ To Coinbase Investors
The CFO was asked if it was possible that the courts could force Coinbase to divert customer money to its creditors. In reply, she said if it comes to it, there is a very small tail risk that it still could happen.
The clarification follows a recent disclosure that suggested if Coinbase were to go bankrupt, it could treat its customers as ‘unsecured creditors’.
“There are two layers of protection to Coinbase investors — operational controls and legal protection. Each clients’ assets are segregated and separately held in their name on our ledgers. And it is the customer who directs the money and we do not re-hypothecate any funds.”
Funds Not At Risk
Haas added that hence, there is no risk of a possible ‘run’ on Coinbase. She explained that the legal protections are clearly stated in the terms of service with the customers.
“We state that it is the customer’s asset we are holding on their behalf. So the reason we made the disclosure is to point out that there could be a tail risk. The event of bankruptcy is unlikely as we have six billion of cash.”
Indicating that the confusion arised due to the inclusion of a new risk factor based on an SEC requirement, the Coinbase CEO tweeted,
“We have no risk of bankruptcy, however we 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.”
Stating that crypto is a brand new nascent industry, Haas said there was zero case law as it comes to crypto bankruptcy. Keeping in mind the nature of risk factors, we believed there could be a tail risk to Coinbase investors in the unlikely event of bankruptcy, she said.