Coinbase filed an amicus brief in Prime Trust’s bankruptcy to oppose a motion which could have threatened the protection of customer assets.
In a Feb. 5 court filing, the exchange has urged the court to uphold Uniform Commercial Code (UCC) Article 8, a legal framework that ensures custodial assets remain customers’ property.
As per the exchange
“Article 8 contains unambiguous statutory text that parties may agree to treat a host of assets, including cash or digital assets, as financial assets credited to a securities account, and that assets subject to such agreement are not property of the custodian’s estate.”
Paul Grewal, Coinbase’s Chief Legal Officer (CLO), further emphasized in an X post that UCC Article 8 establishes a fundamental principle—customer assets stored by custodians do not belong to the custodian. The assets remain in the possession of their owners.
Grewal stated that Prime Trust’s and Coinbase’s user agreements clearly stipulate that clients retain ownership rights to their assets. He argued that any attempt to classify those holdings as part of a custodian’s estate during bankruptcy would contradict those agreements and undermine legal protections.
Grewal stressed that UCC Article 8 is not just about crypto—it is a foundational legal safeguard designed to keep customer assets separate from a custodian’s holdings. He warned that allowing assets to be absorbed into Prime Trust’s bankruptcy proceedings could erode market trust and disrupt financial stability.
Prime Trust declared bankruptcy under Chapter 11 in August 2023 due to severe financial difficulties. As part of its bankruptcy proceedings, the estate’s managers filed a Determination Motion on Jan. 15, proposing to merge customer funds with the platform’s assets.
Coinbase believes that granting this motion could set a dangerous precedent that weakens customers’ legal protections in crypto and traditional finance.
The firm, in light of the above, urged the Court to refuse the Determination Motion so that the established legal protections are maintained.
Grewal concluded: Courts have reinforced these principles consistently and they should continue to do so in this case. He wrote that:
“Protecting customer assets is paramount to trust and security.”
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