Tron founder Justin Sun recently voiced sharp criticisms against Coinbase's wrapped Bitcoin product, cbBTC. The outburst happened on social media platform X, where Sun expressed his concerns just two days after cbBTC's launch on the Base network.

Armstrong's Response

Coinbase CEO Brian Armstrong responded quickly to Sun's accusations. Armstrong dismissed Sun's concerns as largely unfounded.

He clarified that all transactions related to ETFs, including mints and burns, are settled on-chain. "Not sure what this is all about, TBH. All ETF mints and burns we process are ultimately settled on-chain," Armstrong said.

He added that institutional clients can access trade financing and over-the-counter (OTC) options before their trades are finalized on-chain.

Centralized Custodian

Armstrong emphasized that the wrapped Bitcoin, cbBTC, operates as a centralized custodian product, which has always been made clear. "As for cbBTC, yes, you're trusting a centralized custodian to store the underlying BTC - we've never claimed otherwise," he noted.

Sun's Concerns

In his posts, Tron's Sun raised several concerns about Coinbase's new product. Sun specifically highlighted the lack of Proof-of-Reserve (PoR) and audits for cbBTC, describing it as a "trust me" system.

He warned that users' balances could be frozen without notice.

According to Sun, Coinbase's wrapped Bitcoin poses a significant risk of government intervention. "Any U.S. government subpoena could seize all your BTC. There's no better representation of central bank Bitcoin than this. It's a dark day for BTC," Sun cautioned.

Community Reaction

Sun's concerns quickly resonated with some of his followers on X, many of whom agreed with his views. However, the Coinbase CEO responded that their practices align with industry standards.

Armstrong reassured users that the company is regularly audited by Deloitte and must maintain transparency as a public company.

"If you want audits, Deloitte audits us annually; we're a public company," Armstrong stated. He further stressed that institutional client funds are secure in Coinbase's Prime vaults.

The Need for Proof-of-Reserve

In light of the ongoing debate, Proof-of-Reserve has become a critical topic. Following the high-profile collapses of Terra/LUNA and FTX in 2022, PoR reports are now seen as vital tools for ensuring a crypto exchange's transparency and financial health.

Several major crypto exchanges, such as Binance, regularly release PoR reports to assure users of their assets.

Binance, for instance, recently released its 22nd PoR report. This report revealed that the exchange holds a BTC ratio of 106.84% compared to user balances.

The need for PoR reporting is especially relevant as users demand more transparency from centralized exchanges (CEXs).

Despite Sun's criticisms, Armstrong's response underlines Coinbase's ongoing commitment to following best practices for its institutional clients and products like cbBTC.