A new token representing staked Ether just hit the blockchain.
Coinbase is launching a new liquid staking derivative (LSD) of ETH called cbETH. The move marks the crypto exchange’s entry into a space dominated by decentralized players like Lido Finance and Rocketpool.
Like Lido’s stETH and RocketPool’s rETH, cbETH can be freely traded, borrowed against, and used like any other asset on the Ethereum blockchain.
The basic advantage of ETH LSDs is that investors don’t lose access to their liquidity when staking their tokens to validate the network — they get all the benefits of staking ETH, while also being able to use the LSD in the broader DeFi ecosystem.
Until now, parties with traditional corporate structures haven’t entered the LSD game — Lido has a decentralized autonomous organization (DAO) component that votes on governance proposals, and Rocketpool bills itself as a decentralized protocol.
Coinbase, on the other hand, is the fifth-largest centralized exchange, which processed $1.7B in trading volume in the last 24 hours, according to CoinGecko.
Coinbase’s net revenue was $802M in Q2 2022, down over 60% from Q2 2021 when net revenue was over $2B.
One big upshot of Coinbase issuing its own ETH LSD is it may attract more users to stake Ether — with cbETH, users can potentially earn additional yield while also accruing staking rewards.
And staking is a big business for Coinbase — the company gets 8.5% of its revenue from staking tokens on behalf of customers, according to Bloomberg.
Second Largest Staker
Coinbase already has deposited 14.7% of the ETH in the consensus layer of Ethereum, called the Beacon Chain. This makes the company the 2nd-largest staker, according to a Dune Analytics query.
While the Beacon Chain is currently running in parallel to Ethereum, it will replace the proof-of-work algorithm as the consensus layer after the much-anticipated Merge.
Coinbase’s announcement comes at a time when Brian Armstrong, the company’s CEO, has said that Coinbase would exit the staking business altogether, rather than censor transactions as a major stakeholder in the Ethereum network.
Coinbase also said in its most recent 10-Q form, that its staking services are among customer programs about which the SEC has made investigative subpoenas and requests.
With the move, Coinbase seems to be sending a clear signal that it will keep pushing ahead with its staking services, regardless of regulatory queries.