On September 23, 21.co, the parent organization of cryptocurrency asset manager 21Shares, revealed plans to incorporate Chainlink’s proof of reserve feature into its 21BTC product. This move aims to alleviate concerns regarding the backing of the Bitcoin (BTC) wrapper.
By embedding proof of reserves within 21BTC on the Ethereum and Solana platforms, 21.co stated that it enhances protection against fraudulent minting, ensuring that any newly created tokens are securely backed by real reserves.
This announcement comes in the wake of growing apprehension among retail cryptocurrency investors about the safety of the underlying spot BTC that supports Bitcoin wrappers like Wrapped Bitcoin (WBTC) and Coinbase Wrapped BTC (cbBTC).
Chainlink’s proof of reserves offers an automatic auditing process for financial data, including off-chain reserve balances, and relays this information to blockchain-based smart contracts in real-time.
Source: Chainlink
In related news, concerns were raised regarding the service terms of cbBTC, prompting a response from Coinbase’s chief legal officer.
On August 9, BitGo, the custodian responsible for the Bitcoin backing WBTC, agreed to provide BiT Global, a crypto exchange based in Hong Kong, with partial control over the multisignature wallet that safeguards the Bitcoin assets. This decision sparked controversy, particularly due to Justin Sun’s involvement, leading many within the ecosystem to voice concerns about potential misappropriation of collateral linked to his affiliated projects, as noted by Threshold, a competitor in the Bitcoin wrapper space.
In light of these developments, Sky, a decentralized finance (DeFi) protocol previously known as Maker, chose to discontinue its support for WBTC. Meanwhile, Coinbase’s cbBTC, launched on September 12, has quickly gained traction, becoming the third-largest wrapped BTC token.
However, speculation about the safety of cbBTC’s Bitcoin backing has since emerged, particularly following a September 16 filing by asset manager BlackRock, which requested expedited BTC withdrawal times. BlackRock utilizes Coinbase to manage the spot BTC within its iShares Bitcoin Trust (IBIT).
On September 22, Paul Grewal, Coinbase’s chief legal officer, addressed rumors suggesting that Coinbase had no plans to compensate cbBTC holders for BTC backing lost due to a cybersecurity breach.
Source: Paul Grewal
In the U.S., regulated custodians and exchange-traded fund (ETF) sponsors, including Coinbase and BlackRock, are subject to stringent oversight and reporting protocols, which encompass regular third-party audits.
Eric Balchunas, an ETF analyst at Bloomberg Intelligence, commented on September 23 that while BlackRock would provide information to institutional clients upon request, it would not make such data publicly accessible. He emphasized that BlackRock is highly experienced in managing ETF holdings with custodians and has maintained a strong track record for decades, which is why they are trusted by financial advisors across America.
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