Is Coinbase Building a Financial System Where Users Carry All the Risk?

Coinbase, the largest US-based exchange regarding trading volume metrics, is popular as one of crypto’s secure and trusted gateways. Users see it as a blue-chip exchange set apart from the chaos of offshore rivals.

However, lawsuits surrounding its recent insider data breach suggest something more unsettling, revealing a finance model where the institution absorbs little liability and the user carries almost all of the risk.

Coinbase’s Finance Model That Shifts Risk to Users

At a traditional bank, deposits are protected by regulation, insurance, and reimbursement guarantees. If a hacker drains a user’s checking account, US law requires the victim’s bank to make the user whole.

By contrast, the Coinbase exchange has built what looks like an inverted bank. The exchange is subject to surveillance obligations, including reporting transactions to the IRS, flagging suspicious activity, and satisfying anti-money laundering (AML) checks. Still, it must not shoulder the protective responsibilities that banks must.

This leaves users at a crossroads. On the one hand, Coinbase is regulated like a bank when it benefits the state. On the other hand, it escapes bank-level obligations regarding safeguarding customers. Critics argue this is not simply negligence but a systemic shift in distributing financial risk.

“Lose $100,000. Get back a $100, which won’t even cover your Netflix subscription. That’s Coinbase’s fine print,” wrote Sindhya Valloppillil, a columnist at Forbes.

That tension became undeniable in May 2025, when Coinbase admitted that insiders at a third-party contractor leaked sensitive customer data. Nearly 70,000 users had their Social Security numbers, IDs, and bank details stolen.

While Coinbase insisted no wallets were compromised, in crypto, identity is currency, and once personal data hits the dark web, the exposure may be permanent.

Court filings revealed the scheme began months before disclosure, leaving customers unknowingly vulnerable.

“According to personnel knowledgeable of the data breach, in 2024, criminal actors began a campaign of outreach to target and recruit TaskUs employees to join a conspiracy to exfiltrate PII of Coinbase users so that those criminals could steal cryptocurrency assets held by those users. As early as September 2024, TaskUs employee Ashita Mishra joined the conspiracy by agreeing to sell highly sensitive Coinbase user data to those criminals,” the filing reads.

Beyond a security lapse, subsequent class actions allege a deeper structural negligence. They pointed to outsourcing privileged access while marketing Coinbase as the “safest” option in crypto.

Fortress for the Company, Not the User

Coinbase’s fine print makes clear where the fortress walls are drawn. User agreements cap liability at roughly $100 or the fees paid in the past year. By any standards, this is a trivial amount if tens of thousands vanish from an account.

While arbitration clauses prevent collective lawsuits, indemnification provisions can even force customers to cover Coinbase’s legal costs in some cases.

In other words, the company has fortified itself against claims but exposed its customers. While banks socialize risk across depositors and the institution, Coinbase privatizes it. This shifts the burden onto individuals, one arbitration at a time.

Coinbase is not a fringe exchange but the only publicly listed US crypto exchange with more than $400 billion in assets under custody.

Therefore, this inverted model could have ripple effects. It is the reference point for regulators and Wall Street, highlighting a firm that signals whether crypto is maturing into mainstream finance.

If the blue-chip gateway normalizes a framework where users absorb losses while the company shields itself, that precedent could shape the industry far more than any token experiment.

It would turn Coinbase into something beyond a custodian of crypto assets, ultimately making it the prototype for a financial system where surveillance is mandatory and protection is optional.

“Coinbase is treated like a bank when it comes to surveillance — but not when it comes to safeguarding users. Its ‘secure and trusted’ image is unraveling,” Valloppillil added.