Coinbase, Inc. (“Coinbase”) stores customer U.S. Dollar cash in Federal Deposit Insurance Corporation (“FDIC”)-insured bank accounts, National Credit Union Share Insurance Fund (“NCUSIF”)-insured credit union accounts, and in short-duration, liquid investments like U.S. government money market funds to keep it safe and liquid. Like all assets on Coinbase, we hold customer cash 1:1 and your assets are your assets. We do not lend or take any action with your cash unless you specifically instruct us to.
And we take additional steps to ensure customer cash is always secure. We use three categories of controls which are overseen by our finance team and risk committees:
Books and records
Risk management
Business continuity
Books and records
We properly segregate and maintain records for our corporate cash and customer cash. There’s never a situation where customer assets could be confused with corporate assets. Our corporate cash used for corporate expenses sits in bank accounts titled “Coinbase, Inc.” (or another Coinbase entity).
U.S. customer cash (plus some cash we contribute for operational reasons) sits in omnibus accounts titled, in effect, “Coinbase Inc. FBO its customers.” The “FBO” means “for the benefit of” and tells our partner financial institutions the cash belongs to our customers.
We maintain internal ledgers as an official record of how much cash each customer holds. These records are required to secure pass-through FDIC insurance and/or NCUSIF insurance for our customers in the event of failure of the partner financial institution.
Coinbase’s cash management practices are subject to internal audit, third party independent audit, and regulatory review. Coinbase’s Internal Audit team performs periodic internal audits over Prime and custody operations, including cash management and supporting systems, and Coinbase engages an independent third-party auditor to perform periodic SOC 1 Type II attestations of Coinbase Prime. The SOC 1 Type II reports produced cover customer cash management controls. Additionally, our parent company’s financial statements and disclosures, as a whole, are available through periodic filings on a quarterly basis, and compliant with annual audit requirements of Article 3 of Regulation S-X. Finally, Coinbase is subject to regular examination by various state banking departments of Coinbase’s cash management as a condition of maintaining money transmitter licenses.
Risk management
We have policies and procedures that dictate where we deposit customer cash, how much we deposit in each financial institution in aggregate, and how much we can hold in each financial institution per customer.
We regularly conduct thorough reviews of counterparty risks, including of the financial institutions we use. We dynamically manage our deposit limits per financial institution at the aggregate level. A list of the insured depository institutions at which Coinbase deposits customer funds can be found here. Our procedures have been developed to ensure that if one of our financial institution partners failed, our internal ledger records would tell the FDIC or NCUA exactly how much of each FBO account belongs to each customer. Our systems automatically reconcile that ledger to statements daily.
A customer’s deposits in the aggregate with an insured financial institution are protected up to $250,000 by the FDIC or NCUSIF, as applicable, in the event of the financial institution’s failure. This means that if a customer maintains cash deposits at an FDIC- or NCUSIF-insured financial institution independently of the cash amounts the customer stores with Coinbase and that Coinbase deposits with the same financial institution, the customer will be protected for losses only up to $250,000 in the event of the financial institution’s failure.
We have internal limits on cash held at financial institutions that can reduce exposure further. If a customer deposits more cash (U.S Dollars) with Coinbase than Coinbase may allocate to these banks or credit unions, pursuant to our internal limits, we sweep, each day, the amount over our internal limits into short-duration, liquid investments following state money transmission laws. These investments could include U.S. Treasuries and U.S. government money market funds. These money market funds invest in high-quality, short-term securities issued or guaranteed by the U.S. government. The funds comply with Investment Company Act Rule 2a-7, which means at least 10% of their assets can be converted to cash in one day. In fact, typically about 80% of the funds’ assets have daily liquidity. And, again, the investments are in accounts titled, in effect, “Coinbase FBO its customers,” to make explicit that these are customer assets. Funds could be held at financial institutions or in permissible investments under money transmitter laws, so customers should not assume that funds are being held in one manner over the other.
Business continuity
At Coinbase, prudent risk management is at the core of our business and product design and we plan for business continuity in the event of partner financial institution service disruptions. While we have confidence in our bank and credit union partners, we do have contingency plans and redundant payment rails to ensure we can continue to serve our customers and provide them access to their cash stored with Coinbase in the event we encounter changes with our financial institution partners.