Coinbase CEO Brian Armstrong said on Wednesday that the exchange’s retail customers may not be able to recover their holdings in case of bankruptcy.
Armstrong also admitted that the company had not disclosed this to its customers until the risk was highlighted in a filing on Tuesday.
Armstrong’s comments come following a recent disclosure that suggested if Coinbase were to go under, it could treat its customers as “unsecured creditors”.
Armstrong says no risk of bankruptcy
He said that the new disclosure of potential risk was made because of a Securities and Exchange Commission (SEC) mandate. But this had not been communicated to retail holders, which make up most of the exchange’s userbase.
Still, Armstrong clarified that this potential risk was only in the event of a bankruptcy- something the exchange was in no risk of experiencing. The treatment of a company’s holdings during bankruptcy is also largely up to a court, something beyond the firm’s control.
It is possible, however unlikely, that a court would decide to consider customer assets as part of the company in bankruptcy proceedings, even if it harmed consumers.
But the row over Coinbase highlights a common criticism of centralized exchanges- that a holder does not truly own the crypto held through a centralized medium. Coinbase also offers a decentralized wallet service.
Coinbase Q1 revenue, volumes slump
While the exchange does not face a bankruptcy risk, it is still under pressure from poor market conditions. Coinbase’s first-quarter revenue slumped 35%, while its trading volumes dropped to $309 billion from $547 billion, the company said on Tuesday. Shares of the exchange tumbled over 13% in after-market trading.
The weak results come amid one of the worst capitulations seen by crypto markets in a year, which has wiped nearly $500 billion of market value.
The first quarter of 2022 was also marked by poor market conditions, stemming from fears of rising inflation and the outbreak of the Russia-Ukraine war. COVID-related shutdowns in China and Hong Kong also largely dented economic conditions.
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