Friday, a billion-dollar lawsuit was announced against Coinbase for delisting wBTC.
The news was shared by attorney Kevin Kneupper of Kneupper & Covey on his official X profile.
A $1 billion lawsuit against Coinbase has just been filed by our client, BiT Global Digital Limited, over the delisting of wBTC. We’re seeking an immediate temporary restraining order to stop the threatened delisting! The lawsuit is available here:https://t.co/UXpO06ztDi
— Kevin Kneupper (@kneupperlawyer) December 13, 2024
The wBTC project
wBTC is the most well-known wrapped token that represents Bitcoin on the Ethereum network.
By itself, it capitalizes more than 14 billion dollars, more than SUI or Polkadot, to be clear.
It has existed since 2019, and it was created specifically to have on Ethereum a token that replicated the price trend of Bitcoin.
In fact, it is a so-called wrapped token, fully collateralized in BTC: for every wBTC issued on Ethereum, there is a BTC locked in the manager’s wallets. In this way, anyone who holds wBTC can always return them, receiving in exchange an equal number of BTC.
Note that these wrapped tokens are mainly used in DeFi, where on-chain protocols are used that can rarely interact with other chains. In other words, on Ethereum-based DEX, there is no BTC, and there cannot be, so tokens like wBTC are used.
Coinbase and the delisting of wBTC
On centralized exchanges, they are not particularly useful, except for allowing users to make deposits and withdrawals.
So a user who owns wBTC on-chain can deposit them on an exchange, using the Ethereum network, and then trade them as if they were BTC. And when a user wants to withdraw BTC, if they wish to do so on the Ethereum network, they can use tokens like wBTC on those exchanges that support them.
The fact is that in November Coinbase announced the intention to delist wBTC starting from December 19.
This decision was announced after the main custodian of wBTC, BitGo, revealed that it would distribute control over custody to three entities, including the Hong Kong-based trust company BiT Global, which has ties to Justin Sun.
BiT Global did not take it very well, and immediately protested.
Coinbase’s decision to delist WBTC, without any concrete reason beyond a vague “recent review” goes against everything the DeFi and crypto industry stand for. It’s clear that Coinbase’s decision is an attempt to gain a competitive advantage, pushing forward their own wrapped…
— BiT Global (@BiTGlobalTrust) November 20, 2024
Despite such protests, Coinbase went ahead with the delisting, explaining that, to maintain the high integrity of their standards, they regularly evaluate the listed assets, and if they find that an asset no longer meets those standards, they decide to delist it.
The protests against the delisting of wBTC by Coinbase
BiT Global has stated that Coinbase has decided to delist wBTC shortly after launching its wrapped Bitcoin, called cbBTC.
Furthermore, the law firm Kneupper & Covey highlighted that in recent weeks Coinbase has listed a whole series of valueless memecoins, expressing surprise that those memecoins meet its standards, while wBTC does not.
The accusation, therefore, is that of having made the decision to favor cbBTC by delisting wBTC.
The exchange, in fact, argues that wBTC may face new risks.
It is worth noting, however, that cbBTC is present both on Ethereum and on the layer-2 Base, created and managed by Coinbase itself, and that it is the second largest wrapped token of Bitcoin with a market capitalization of just over 2 billion dollars.
The cause in atto
Kevin Kneupper revealed that they have sued Coinbase for 1 billion dollars.
The lawsuit primarily contests the damages that the delisting of wBTC will cause to BiT Global and to consumers in the cryptocurrency sector.
According to Kneupper, this decision creates a dangerous precedent for everyone in the cryptocurrency sector, because if a centralized exchange the size of Coinbase can arbitrarily decide to delist a cryptocurrency while planning to launch a competing product, no token would be safe.
At this point, one asks:
“Who will be the next one?”
The complaint alleges that Coinbase is engaging in anti-competitive conduct to push wBTC out of the US market, and to make room for its competing product.
The exchange also promoted a tweet in which cbBTC is described as “super strategic for Coinbase,” expressly predicting that it will surpass WBTC within 6 months of launch.
The reason the lawsuit was filed for a billion dollars is that it is estimated that the damages for BiT Global could even exceed this figure.
Kneupper stated:
BiT Global and Justin Sun
Justin Sun is the much-talked-about founder of Tron.
In this specific case, however, it seems to have to do with the issue only indirectly, despite its direct relations with BiT Global.
However, some relevant details need to be added to this.
The first, already mentioned previously, is that the custodian of wBTC is not BiT Global, but BitGo. BitGo is independent from Justin Sun, but at the moment when part of the custody of wBTC will pass to BiT Global, Sun could start to have a role in all this, although only partial.
The second detail is that others also did not like this move by BitGo. For example, MakerDAO, which manages USDS (formerly DAI) and holds collateral assets (including BTC), has decided to abandon wBTC and switch to other wrapped BTC tokens. However, they have also decided not to liquidate existing positions but to simply stop using it in the future for the potential opening of other positions.
The third detail is the increasingly questionable reputation of Justin Sun.
Lately, it has been much talked about, but in a way that the markets do not seem to have liked very much.
Therefore, the wBTC issue might also have further repercussions in the future, unless BitGo backtracks.