Coinbase Wallet Sparks Controversy With New Encrypted Messaging Feature

Coinbase Wallet has launched an encrypted messaging feature powered by XMTP, enabling users to send direct and group messages, interact with mini-apps, and trade in real time within the wallet.

By Sulaimon Adewole

May 14, 2025 at 11:47 AM

Last updated

May 14, 2025 at 11:47 AM

Coinbase Wallet Sparks Controversy With New Encrypted Messaging Feature

KEY FACTS

Coinbase Wallet has launched an encrypted messaging feature powered by XMTP, enabling users to send direct and group messages, interact with mini-apps, and trade in real time within the wallet.
The feature aims to enhance user experience and streamline communication, but security experts warn it could make users more vulnerable to scams and impersonation attempts.
Critics like Taylor Monahan and ZachXBT argue that Coinbase has not adequately addressed existing security issues, with users already losing over $300 million annually to social engineering scams.
The update has sparked debate in the crypto community, balancing convenience and innovation against heightened risks of fraud and phishing

Coinbase Wallet advances its wallet features by introducing encrypted messaging that allows direct messages (DMs) and group chats.

In an X post on May 13th, 2025, Coinbase Wallet, a non-custodial wallet developed by the Coinbase exchange, announced that its users are about to enjoy secured and encrypted messaging powered by XMTP, a decentralized messaging network.

The feature allows users to use mini-apps directly in the chat, talk with AI agents and make trades in real time.

However, the announcement has sparked different reactions; some commended the initiative, whilst security experts tagged it as a hassle-free route for scammers to scam more users by impersonating Coinbase workers and the like.

Taylor Monahan, security at MetaMask and Founder and CEO of MyCrypto, faulted the messaging feature and criticized the insecurity Coinbase’s users are being subjected to.

Monahan stated that Coinbase has failed to understand how over $50 million has been siphoned weekly from Coinbase CEX for over a year.

She further said that instead of stopping the heinous crimes, Coinbase is forming more grounds for scammers with a feature that gives the scammers a direct line to all their users’ wallets.

Likewise, Alchemyst (X name), a security researcher, explained that the messaging process is by far the most adopted way by scammers to scam wallet users. So, Coinbase is aiding the bad actors more.

Monahan’s comment aligns with ZachXBT’s criticism of Coinbase’s risk models and customer security, including the company’s inability to stop incessant attacks on its users.

Recently, ZachXBT, a blockchain investigator, revealed Coinbase’s weak security against social engineering scams.

The investigator said that Coinbase users lose over $300 million annually to social engineering scams, adding that the figure might be more than that, as the $300 million only reflects the available data.

According to ZachXBT, at least $65 million was stolen from Coinbase customers between December 2024 and January 2025 alone, with actual losses likely higher due to underreporting.

Similarly, while replying to a comment on how Coinbase users are being scammed, Taylor Monahan stated that scammers:

“Acquire targets personal info en masse via data breaches and Coinbase insiders -> convince them their Coinbase is hacked and they are here to help -> actually hack their Coinbase account -> convince them to move all their wallet funds to a new seed (that they have/help create)”