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At Coinbase, our top priority has always been keeping our customers’ assets safe and secure. That’s why we’ve focused on things like regulatory compliance, consumer protection, and innovation from the very beginning — and it’s why so many people trust Coinbase with their hard-earned money today.

Recently, a few bad actors in crypto have shaken that trust, and highlighted the need for smarter, more comprehensive customer protections. As part of this, some regulators are taking a closer look at the way crypto companies are protecting their customers’ assets. This includes both physical and digital controls, as well as fund segregation and insolvency protections.

Coinbase strongly supports these actions and we applaud the decisiveness of regulators such as the New York Department of Financial Services (NYDFS) for their commitment to consumer protection.

At Coinbase, we have worked hard to safeguard our customers with strong legal and operational protections — protections we believe could serve as a roadmap for other crypto companies and regulators alike. And at the heart of these systems are innovations uniquely enabled by the blockchain. Over time, we believe that many of these controls and processes will make their way beyond crypto and into traditional financial services.

Below is a brief overview of the ways we leverage traditional and crypto-native thinking to protect our customers’ assets.

Legal protections

As we have seen with the insolvencies of other virtual currency companies, it is vital that customers always retain ownership and interest over their assets. Client assets belong to our clients, not Coinbase, which we clearly articulate in our user agreement. Our user agreement also makes it clear that Article 8 of the Uniform Commercial Code applies to our customers’ digital assets, meaning client assets remain client assets in any eventuality. Case closed. No negotiations.

Using blockchain to improve the traditional ledger

On the technology side, our platform allows tens of millions of users around the world to safely buy, sell, store, spend, earn, and use crypto assets. And we’ve done it by leveraging the full power of the blockchain.

For centuries, banks, asset managers, commodity brokers, and others in traditional finance have relied on something called an omnibus account to store funds. By combining many customer funds — and even house funds — in the same place, institutions can more easily move funds as withdrawals, deposits, and trades take place. And they keep track of which funds belong to which customer by using an internal ledger.

Coinbase works the same way. When a transaction is executed, it’s immediately recorded on our ledger and it settles there, even before new blocks of information post on a blockchain. This makes everything fast and efficient — actions like crypto buying and selling, USDC minting, and moving to and from cold storage, which affords the highest level of cybersecurity protections.

Just like at a bank, our ledger is automated. Each entry contains a unique identifier allowing a full audit trail. In fact, we reconcile our ledgers every two hours. And there is never a risk of customer assets being confused with corporate assets. We can clearly see asset account balances and transaction history for each account, and serve the information to customers in real time. Our process is transparent and regularly examined as part of our annual audits.

We hold customer assets 1:1

As a publicly traded company in the U.S., we protect our customers through strong operational and legal protections, and our healthy balance sheet is public. We also take a prudent approach to risk management, and our customers are not in danger of liquidity or credit risk.

And unlike many financial institutions that only hold a fraction of their customer assets at any given time, Coinbase always holds customer assets 1:1 — as you can see in our public, audited financials.

Prioritizing regulatory engagement and licensing

Finally, we’ve worked hard to set the standard for legal and regulatory compliance in the crypto industry. Along with our affiliates, we have 45 money transmitter licenses, a “BitLicense” and a New York Trust Charter from NYDFS, consumer lending licenses in 15 different states, and maintain a futures exchange, or designated contract market, that is regulated by the Commodity Futures Trading Commission (“CFTC”).

We’re also registered as a money services business with the Financial Crimes Enforcement Network (“FinCEN”), and serve on the Department of the Treasury’s Bank Secrecy Act Advisory Group. Our activities are subject to federal oversight from other agencies, including the SEC, the Internal Revenue Service (“IRS”), and the Federal Trade Commission.

In other words, the legal and operational protections we offer mean that customers can trust that their assets are being held in a safe, secure, and compliant way.

Next steps

Going forward, we’ll keep working with regulators globally to share information and updates on our thinking. Crypto has the potential to not only create a new financial system, but a better one.

We look forward to continuing our work with global regulators to make sure customers and businesses — which are the most important part of any ecosystem — are well protected. This type of collaboration is critical for ensuring new policies protect customers and punish bad actors without compromising the technological advancements that make crypto unique. It’s the best way to encourage innovation and keep people safe, and we remain committed to make it happen.