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Is Coinbase’s New cbETH a Huge Step Forward in Liquid Staking?

Coinbase, one of the largest validators on Ethereum’s Beacon Chain, has launched a new liquidity staking derivative (LSD) that will enable stakers to unlock the utility of their staked ETH.

The giant crypto exchange is making a big entry into a rapidly growing market that is currently under the heavy influence of incumbent players such as Lido Finance and Rocket Pool.


A First Look at cbETH

Coinbase’s LSD is called cbETH and is a step forward in liquid staking for the support of Ethereum’s upgrade to a PoS network as cbETH is fully transferable and can be unwrapped to claim the underlying staked ETH at any time.

Liquid staking is when users can unlock the value of their staked tokens without having to sacrifice any rewards or penalties.

Anyone can lock their ETH on the Ethereum network and participate in the network’s security by validating transactions and earning rewards. However, despite the benefits of staking ETH, there are drawbacks as staked ETH is non-transferable, and unstaking comes with delays that sometimes go as far as several weeks.

With cbETH, users can have the best of both worlds as they can continue to support Ethereum’s network while also having the liquidity to use their cbETH as collateral across the DeFi landscape. They also earn staking rewards (currently around 4% APY) that are represented in the price appreciation of cbETH.

The move will help bring more users and projects under the Coinbase umbrella as the Ethereum network continues its transition from PoW (Proof-of-Work) to PoS (Proof-of-Stake).

According to Coinbase, cbETH is an ERC-20 token, and transfers are only available on the Ethereum network. The crypto exchange warns that attempts to move the token across other networks will result in a loss of funds, as with all ERC-20 tokens.

How cbETH Works

According to reports, there will be no expenses while unwrapping or wrapping cbETH, but there are some staking fees to keep in mind. Coinbase mentioned in their announcement that cbETH is not a 1:1 peg of ETH; however, it reflects the ETH staked by a user as well as the interest accrued by that user not to mention penalties and fees.

Thanks to this floating conversion rate, Coinbase stakers will easily move between ETH and cbETH even with constantly changing network conditions.

For instance, a user looking to exit their staked ETH position can easily do so by wrapping their staked ETH to cbETH thereby selling their cbETH on an exchange for ETH or any other ERC-20 token.

Likewise, a user looking to use their staked ETH as collateral on a DeFi protocol can wrap their ETH to cbETH and deposit the cbETH on the DeFi protocol as collateral. This prevents the user from having to sell their position on Ethereum’s Beacon Chain.

The Need for Competitive Liquid Staking

At the moment, Ethereum’s liquid staking market is dominated by Lido, which is backed by industry-leading staking providers. According to reports, Lido controls about 33% of Ethereum 2.0 staking. Lido’s LSD token is called stETH and boasts of a capitalization of $6.95 billion making it one of Lido’s most valuable liquid staking assets.

Lido also provides liquid staking for other networks such as Polygon, Solana, Polkadot, and Kusama. Similar to cbETh, Lido’s stETH can be used as collateral on DeFi protocols.

Another major player in Ethereum’s liquid staking market is Rocket Pool. The firm’s LSD token called rETH has a capitalization of $1.03 billion which makes it a distant second to Lido.

Where cbETH Fits Into Liquid Staking

With Coinbase’s cbETH, the firm joins the ranks of Lido and Rocket Pool as a major player in Ethereum’s liquid staking market.

Up to this point, traditional corporate players have been slow to offer LSDs for their staked assets. This is primarily due to the lack of incentive for these firms to do so.

For instance, a firm that offers an LSD for its staked ETH would essentially be competing with itself as users would rather buy the LSD and use it as collateral on DeFi protocols than stake the ETH themselves and earn rewards.

However, with players such as Coinbase entering the market, stakers no longer have to worry about penalties and risks associated with early withdrawal as they can now easily utilize their staked ETH position without having to sell their ETH on an exchange. Coinbase also offers guarantees against slashing as their staked ETH has no downtime therefore zero penalties and risks for stakers.

What’s more, staking is quite profitable for Coinbase as reports indicate that the company’s revenue from staking tokens for its clients amounts to 8.5%.

Conclusion: More Diversity is a Win

Coinbase’s move to support cbETH is a big win for stakers. The ability to easily gain yields from their staked ETH position without having to worry about penalties and risks associated with early withdrawal is a major advantage that cbETH has over traditional staking methods.

What’s more, the fact that cbETH can be used as collateral on DeFi protocols is a major selling point that could attract more users to cbETH and support Ethereum’s transition to a Proof of Stake network.

With traditional corporate players such as Coinbase entering the liquid staking market, we can expect to see more LSDs being offered for staked assets thus decentralizing the market further.

Finally here’s a detailed look at some of the best ways to stake Ethereum right now.

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Jinia Shawdagor

About the Author

Jinia Shawdagor

Jinia is a fintech writer based in Sweden focused on the cryptocurrency market and blockchain industry. With years of experience, she contributes to some of the most renowned crypto publications such as Cointelegraph, Invezz and others. She also has experience writing about the iGaming industry.

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